Protect Yourself: A Comprehensive Guide to Avoiding Tax Scams

Welcome to our in-depth guide designed to empower you with knowledge and strategies to safeguard against the growing threat of tax scams as we approach the upcoming tax season.

In the intricate landscape of tax-related fraud, it's imperative to stay informed on the various schemes that scammers employ to target unsuspecting individuals and businesses. Throughout this blog post, we will explore diverse scams, including false refund claims delivered through deceptive mail, the importance of vigilance against misleading Employee Retention Credit schemes, and the evolving nature of phishing scams which have proliferated since the pandemic.

Additionally, we'll delve into the persistent risk of identity theft, urging you to be proactive in safeguarding your personal information.

The guide will equip you with the knowledge to recognize telltale signs, offering insights on navigating tax season securely. We'll cover topics ranging from false charities and phishing attempts to the critical aspect of reporting tax-related illegal activities.

How to Know Whether Communication is From the IRS

Learning how to distinguish legitimate IRS communications from potential scams is a crucial first step in protecting yourself from tax extension scams. The Internal Revenue Service (IRS) has established clear guidelines on how and when they contact taxpayers, providing you with the tools you need to identify authentic communications.

1. Contact Initiation: The IRS primarily initiates contact through regular mail, delivered by the United States Postal Service. This standard communication method ensures a documented trail and allows you to verify the legitimacy of the message.

2. Phone Calls or In-Person Visits: While the majority of IRS communications occur through mail, there are specific situations where the IRS may resort to phone calls or in-person visits. An IRS representative may visit a home or business as part of a collection investigation or a criminal investigation.

3. Overdue Tax Bill or Delinquent Tax Return: If you owe taxes or have a delinquent (unfiled) tax return, the IRS may contact you through phone calls or mail to schedule an in-person appointment. These notifications serve as warnings, giving you ample opportunity to address the outstanding issues.

4. Verify Through Official Channels: To confirm the authenticity of any communication claiming to be from the IRS, independently verify the information through official channels. Visit the official IRS website or contact the IRS directly using publicly available contact information. Do not use contact details provided in suspicious emails or phone calls, as scammers often attempt to mimic official communications.

Remember, the IRS places a high priority on transparency and ensuring that taxpayers are informed and well-prepared for any interactions. If you ever doubt the authenticity of a communication, take the extra step to verify it through official IRS channels. Your vigilance is key to protecting yourself from tax extension scams and maintaining the security of your financial information.

Tax Scams Overview

Scammers employ diverse methods, including regular mail, telephone calls, and emails, to target individuals, businesses, payroll, and tax professionals. It's crucial to note that the IRS never initiates contact through email, text messages, or social media channels for personal or financial information.

Recognizing the signs of a scam and understanding how the IRS communicates can help you stay one step ahead of potential threats.

1. Beware of False Refund Claims: One prevalent scam involves scammers sending mail in cardboard envelopes, mimicking delivery services. The enclosed letter, bearing an IRS masthead, falsely claims to be related to an unclaimed refund. Remember, the IRS does not initiate contact via email, text messages, or social media for personal or financial information. Always verify the authenticity of such communications.

2. Employee Retention Credit Schemes: Businesses and tax-exempt organizations must be cautious of misleading claims about the Employee Retention Credit (ERC). While the credit is legitimate, aggressive promoters may exaggerate eligibility and charge upfront fees. It's crucial to review official requirements before claiming the ERC to avoid potential pitfalls.

3. False Credits and Wage Information: Taxpayers are warned against using false wage information to claim credits for a substantial refund. Scammers are adapting, urging individuals to exploit tax returns for personal gain. Stay vigilant and ensure the accuracy of your tax information to prevent falling victim to such scams.

4. Phishing Scams with Pandemic Themes: A concerning trend involves phishing scams using pandemic-related themes to steal client data. Tax professionals, especially those in educational institutions, are targeted through emails with ".edu" addresses. Remain cautious and report any suspicious emails to phishing@irs.gov. Moreover, smishing (text message phishing) attempts are on the rise. Beware of fraudulent texts claiming to be from the IRS and requesting personal information. 

5. Beware of Fake Charities: Criminals often pose as charities to solicit donations, taking advantage of taxpayers' generosity. Fake charities not only divert funds from those in need but can also jeopardize your ability to claim deductions. Verify the legitimacy of charities before making donations.

6. Offer in Compromise Mills: Be cautious of promoters claiming to settle IRS debts for "pennies-on-the-dollar." These "OIC Mills" often charge exorbitant fees and may not provide accurate information about the program's eligibility criteria.

7. Identity Theft and Unemployment Compensation Scams: With the increase in unemployment scams, taxpayers should be vigilant about protecting their identities. Report any discrepancies in Form 1099-G for unemployment compensation promptly to avoid falling prey to identity theft.

8. Post-Disaster Donation Scams: Scammers exploit disasters, attempting to take advantage of taxpayers' generosity. Ensure your donations go to legitimate charities by verifying their credentials before contributing.

9. Phishing Scams Targeting Taxpayers: Phishing scams, disguised as official communications from the IRS, are on the rise. Watch out for unsolicited emails requesting personal information and report them to phishing@irs.gov. The IRS does not require certain updates via email.

Taking Action Against Tax Scams: Reporting and Protecting Yourself

If you come across a tax scam or suspect fraudulent activity, it's important to take prompt action to protect yourself and others. Here's a step-by-step overview of what to do if you encounter a tax scam and how to report it.

1. Verify Legitimacy: If you receive unexpected mail, emails, calls, or messages claiming to be from the IRS, take the time to verify their legitimacy. The IRS typically communicates through regular mail and does not initiate contact via email, text, or social media for personal information.

2. Do Not Engage: Avoid responding to any communication from the suspected scammer. Do not provide personal, financial, or sensitive information. If it's a phishing email, do not click on any links or download attachments.

3. Report to the IRS: If you receive a suspicious communication, report it to the IRS by forwarding phishing emails to phishing@irs.gov. Include any relevant details, such as the sender's email address, phone number, or other identifying information. This helps the IRS investigate and take action against scammers.

4. Complete Form 14242 for Abusive Tax Promotions or Preparers: If you encounter an abusive tax scheme or suspect a tax return preparer is engaged in fraudulent activities, you can complete Form 14242, Report Suspected Abusive Tax Promotions or Preparers. Mail or fax the form, along with supporting material, to the IRS Lead Development Center.

5. Monitor Your Accounts: If you provided any personal information to a suspected scammer, monitor your financial accounts, credit reports, and other sensitive information closely. Report any unauthorized or suspicious activity to your financial institution and credit reporting agencies.

6. Educate Others: Share your experience and knowledge with friends, family, and colleagues to raise awareness about tax scams. Encourage others to stay vigilant and report any suspicious communications.

Remember, staying informed and taking proactive steps to report scams contribute to the collective effort in combating tax-related fraud. By reporting scams promptly, you play a crucial role in protecting yourself and others from falling victim to fraudulent schemes.

Navigating Tax Season with Vigilance and Knowledge

As tax season approaches, it is crucial to remain vigilant against an array of tax scams. By staying informed about the latest tactics used by scammers and understanding the legitimate communication channels of the IRS, you can protect yourself, your business, and your clients from falling victim to fraudulent schemes.

Remember, if a tax deal sounds too good to be true, it probably is. Report any suspicious activity to help combat tax-related fraud and scams.

If you've been involved in a tax-related scam, or simply need more time to file your tax return, you can request a tax extension to get an additional 6 months to file your taxes. Click here to get started.