Taxes strike fear in the hearts of millions. That anxiety makes some people lose their heads and do things like hand out personal information to strangers claiming to be from the Internal Revenue Service.
We’ve uncovered some of the most common tricks scammers use, as well as a few that involve you trying to pull a fast one on the government.
Scam No. 1: Phony calls from the IRS
In this scam, threatening IRS agents call and inform you to pay up, or risk being carted off to the big house.
I’m sure Money Talks News readers are too sophisticated to be taken in by such a scam. But make sure any of your elderly relatives or other people who might be susceptible know that if they get a call from the IRS, it’s fake.
If you’re concerned you might owe money, call the IRS directly at 1-800-829-1040.
Scam No. 2: Phony emails from the IRS
Let’s be very clear. The IRS lives in the Stone Age. They do not email. Ever.
Or at least, they don’t email you. They won’t be sending you an email saying you need to click a link and verify your identity to get a refund. Likewise, you won’t go to jail if you don’t click on a link and fill in your personal information.
It’s all a ruse to get you to give up information to the bad guys so they can steal from you, as you’ll see in scam No. 3.
Scam No. 3: Fraudsters who steal your thunder — and identity
Fraudsters often use scam No. 2 to pull off scam No. 3.
They use your name, address, Social Security number and other personal data to fill out and file a fake tax return in your name. Then they get a big refund. Meanwhile, the IRS rejects your actual return because the agency thinks you already filed.
The problem can be fixed, but it’s a giant headache. Your best bet is to guard your Social Security number closely and file a return as soon as you have all your paperwork.
Scam No. 4: Scam artists who promise a monster tax refund
It’s probably unwise to have your taxes done by someone advertising on a telephone pole. Such “experts” might say they are going to get you the biggest refund ever, but there’s a chance they will falsify your information to do so.
And before that shady return gets you a refund, the preparer might skim some of the money off the top. Remember, if the IRS audits you, the false information is your problem: The IRS holds taxpayers legally responsible for the information provided on their returns.
Scam No. 5: Fair-weather tax preparers
This scam is a variation of scam No. 4. These people don’t necessarily claim to give you the biggest refund, but instead trumpet their ability to do your taxes on the cheap.
The problem? They’re really crooks.
These so-called tax preparers may take your money and run. Or, they may file a return for you while helping themselves to your Social Security number and other information that can be used later for devious deeds, such as identity theft and retail fraud.
Protect yourself by carefully vetting any tax preparer. Search for reviews online, ask for referrals and read our article on how to pick the best tax pro.
Scam No. 6: Charities that aren’t really charities
Fraudulent charities can be a problem throughout the year, but they come back to bite you at tax time. If you are audited for deducting donations to a charity that really isn’t a charity, the IRS might hit you with more taxes and a penalty.
Typically, fake charities make look-alike logos and websites that trick you into thinking you’re donating to established organizations. They also may spring up after a disaster and take advantage of the fact that you want to help. In reality, little to none of your money will make it to the stated cause.
In addition, if a charity says it needs your Social Security number to take your donation, hang up the phone. No charity needs that information, and it’s likely a ploy to steal your identity.
Scam No. 7: Taxpayers who play hide-and-seek with money offshore
Now we move away from the scams that the bad guys try to pull on you, and into schemes taxpayers try to pull on the government.
First up is hiding money in offshore accounts. While this has long been acknowledged as a form of tax evasion, it’s only in recent years that the IRS has started cracking down on offenders. In recent years, foreign financial institutions began reporting information on U.S. account holders to the IRS.
If you want to come clean now, you may be able to reduce your penalties under the Offshore Voluntary Disclosure Program.
Scam No. 8: Taxpayers who pretend they’re destitute
Not claiming all your income is another way taxpayers scam the government.
In some cases, people might simply fail to declare money from side jobs on their taxes. Others might falsify their W-2s and 1099s, while still others split hairs over what’s considered “wages,” insisting they didn’t earn any.
It’s all fun and games until you’re audited, or the IRS notices discrepancies in the information provided.
Scam No. 9: Claiming a tax credit by under-reporting income
Some people report less of their earned income (as defined here) in order to garner benefits like the Earned Income Tax Credit — which is for low- to moderate-income working people. To qualify, earned income must be under certain thresholds, which vary by the number of dependents.
Be warned: This scam is common enough that those who claim the EITC are more likely to get audited than other taxpayers. The IRS says that if your wrongful claim for an Earned Income Tax Credit is found to be done recklessly or fraudulently, you could be banned from claiming it again for two to 10 years.
Scam No. 10: Using not-so-trustworthy trusts
Some people intentionally misuse trusts to shelter money from taxes, or they may do so on the advice of unscrupulous or incompetent finance “professionals.”
A trust can be a legitimate and valuable way to arrange estate planning. However, before you inadvertently run afoul of the IRS, check with someone who specializes in trusts to help you set one up.
Scam No. 11: Employing elaborate schemes to elude the law
This scam is something the IRS calls “abusive tax structures.” Essentially, it involves taxpayers creating elaborate systems to pass money through multiple layers of businesses and accounts to conceal it from the government.
If someone approaches you about investing money in a way that seems incomprehensible, it’s possibly a scam. If they also tell you it will nearly eliminate your tax liability, it’s almost assuredly a scam.
Scam No. 12: Claiming taxes are unconstitutional
Apparently, there’s a whole segment of the population that believes the 16th Amendment — that’s the one authorizing an income tax — was never ratified to become part of the U.S. Constitution.
Their arguments range from the idea that Ohio wasn’t actually a state when it ratified the amendment to apparent transcription errors that occurred when preparing the amendment for votes in various states. As much I wish there was a way to magically get out of paying taxes, I’m not quite ready to argue that we should get a free pass on taxes because some early 20th century typist misplaced some punctuation.
But maybe you are. In that case, you may call yourself a sovereign citizen. However, the IRS will call you a scam artist. And you can certainly fight the law on this if you want, but I can practically guarantee the law will win.
Do you know about additional tax scams? Share them in the comments below or on our Facebook page.