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Tax Fraud and Scams

8 Common Types of Tax Scam to Watch for

Jo Willetts, EA Director, Tax Resources Published On March 24, 2020

Most Americans have encountered a scammer, whether it’s through an email from a fake foreign prince asking for money or a phone call from your “IT department” trying to get your information by convincing you there’s a virus on your computer. Scams from people posing as IRS representatives are becoming more common. Thousands of people fall victim to such scams every year, losing money and valuable time. A small dose of knowledge can prepare you to recognize a tax scam if you’re targeted.

The IRS issues an annual list it calls the “Dirty Dozen”—a list of the 12 worst tax scams encountered over the past year. Scams usually peak around tax filing season when people hire someone to complete their tax returns or start preparing returns themselves. Here are some of the tax scams that appeared on the 2020 Dirty Dozen list – you can visit the IRS website to see the full list.

1. Tax Refund Phishing Emails

Internet phishing scams use fake emails, text messages, websites, and social media to try to steal personal information. Often, the victim will receive a legitimate-looking email with a link to a webpage that seems real. It’s increasingly common for scammers to use phishing attempts to target the files of tax offices, payroll professionals, human resources offices, and any business that may have an employee’s W-2 forms on file. Individuals can also be targeted by phishing attacks—as a rule, avoid clicking on attachments or links in emails you’re not expecting, especially if the email is threatening or offers the promise of a huge tax refund.

2. Fake Charities

Beware of scammers using the promise of a tax deduction to entice you into contributing to a fake charity. The IRS website has a tool called Tax Exempt Organization Search where you can search for a charity to make sure it is legitimate. Never give personal or financial information like passwords or Social Security numbers to someone soliciting donations. Be careful giving your credit card information to those looking for donations, and never give cash if you want to claim that donation as a tax deduction.

3. Fake IRS Phone Calls

Be on guard if you get a phone call from someone claiming to be an IRS agent. These calls are usually unexpected and often aggressive. Automated messages and robocalls are more common than a real person on the line. The caller may have some of your personal information such as your address or the last four digits of your Social Security number and may use bullying tactics to convince you to pay a fake tax bill through wire transfer, prepaid debit card, or gift card. 

Real IRS officials rarely call to request a specific payment method. In such cases, you would generally receive a bill in the mail first. The IRS will also never threaten to bring in law enforcement, demand that taxes be paid without a chance to question or appeal the amount, ask for credit or debit card numbers over the phone, or call about an unexpected refund. In addition, some scam callers will claim your Social Security number will be suspended when taxes are owed—a Social Security number can never be suspended.

4. Social Media Scams

Here, scammers try to convince taxpayers they are dealing with a person close to them. They try to get their personal information such as name, SSN, birthdate, and address and then steal their identity. Or they will get the taxpayer’s email address and send an e-mail with a malware link that can compromise bank accounts, mortgage accounts, and a substantial amount of personally identifiable information (PII).

5. Tax Identity Theft

When a scammer uses a stolen Social Security number or Individual Taxpayer Identification Number (ITIN) to file a fake tax return, that is known as tax-related identity theft. Data can be stolen from any number of security breaches, so it’s important to use antivirus protections and strong passwords when storing or accessing sensitive information online. You can also protect your personal data by keeping paper tax records and your Social Security card in a secure place.

6. Fraudulent Tax Return Preparation Services

On average, about half of Americans choose to have a tax professional prepare their returns. Although most tax professionals are honest service providers, scammers may pose as tax preparers and use the personal information gathered to commit identity theft, refund fraud, and other scams. Choose carefully when looking for a tax preparer — even if the person isn’t a scammer, they could be someone posing as a tax professional despite not being educated about taxes. 

When looking for a tax professional, don’t hesitate to ask for credentials such as a CPA license and an IRS Preparer Tax Identification Number (PTIN). Paid tax professionals are required to register with the IRS and include their PTIN on the returns they prepare. The IRS also provides some guidelines on their website for help in choosing a qualified preparer.

7. Inflated Refund Claims

This is a case of “if it sounds too good to be true, it’s probably not.” Some con artists will claim they can prepare your taxes and get you a refund that’s much larger than usual. Often, these scammers prey on older Americans and non-English speakers. Some scammers may even file a false return in their client’s name, have the large refund deposited into their own account, and the client never even knows the refund was paid. Honest tax preparers will always provide you a copy of the filed tax return.

8. Falsely Padded Tax Deductions

A common scam involves convincing a taxpayer to file a bogus return, including fake W-2 or 1099 forms, to lower the amount of taxes due. Essentially, this scam increases, or decreases, the amount of income claimed to maximize tax credits such as the Earned Income Tax Credit (EITC)

Unscrupulous tax preparers may encourage you to overstate deductions like charitable contributions, medical expenses, and business expenses, as well as falsely claiming tax credits to get a larger return. If these padded deductions are discovered, the IRS can impose penalties such as an additional 75 percent of the tax owed on top of the correct tax bill. Fraud charges can be filed against the taxpayer, by which time the con artist is long gone and can’t be found to be held responsible.

How to Report a Tax Scam to the IRS

If you receive an email or see a website that claims to be from the IRS but you suspect is a phishing attempt, forward it to the IRS at phishing@irs.gov then delete the original email. 

If someone stole your personal information and used it to commit tax fraud, call the number listed on any IRS communications you receive. You can also visit the IRS’s guide to identity theft for further information and suggestions of actions to take for specific circumstances. 

If someone calls you and says they are an IRS agent, ask for their name and badge number. Call the IRS directly at 800-366-4484 to verify if the caller was legitimate.

Signs you might be the victim of a tax scam

You may walk away from an interaction and later realize you've been scammed, so watch out for these signs that you may have been the victim of a scam or tax-related identity theft: 

  • If someone used your Social Security number to file a fraudulent return, your legitimate tax return will be rejected since the IRS already received a return for you.
  • You receive a letter from the IRS asking whether you sent in a return with your name and Social Security number—if you haven’t, someone may have tried to file under your name.
  • You receive a tax document from an employer you’ve never worked for.
  • You receive an unexpected tax refund.

If you are the victim of a tax scam, a tax professional can help you figure out the next steps to take. Contact Jackson Hewitt for assistance in communicating with the IRS about the scam and figuring out a resolution. 

Anyone can end up the victim of a tax scam, but knowing what to expect can lessen the chance of falling for certain schemes. If an interaction with someone seems suspicious, trust your instincts. You can always contact the IRS directly via the information listed on IRS.gov if you have any questions regarding if a communication from the IRS is real or not.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 25 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

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