Understanding Tax Fraud and Scams: What You Need to Know
Tax fraud and scams are on the rise, especially during tax season when fraudsters take advantage of the increased activity around filing and refunds. Fraud can range from identity theft to sophisticated scams aimed at tricking taxpayers into making payments to fake entities. Scammers often use fear and urgency as tactics, making it crucial to stay informed and vigilant. Understanding the tactics and recognizing red flags are your first line of defense against becoming a victim.
Common Tax Scams and Their Warning Signs
Tax scams come in many forms, but they all have one goal: to steal your personal information or money. Some of the most common schemes include phishing emails, fake IRS calls, and scammers who prepare your taxes fraudulently in order to obtain inflated refunds, of which they take a portion. Warning signs include unexpected communications from the “IRS,” demands for immediate payment, and requests for sensitive information like Social Security numbers or bank account details.
By knowing what to look for, you can better protect yourself and your finances during tax season.
Phishing, Smishing, and Vishing: Spotting Fraudulent Communications
Phishing emails, smishing (fraudulent texts), and vishing (voice calls) are popular tools for scammers. They often impersonate the IRS or other trusted entities and include alarming messages about unpaid taxes, account issues, or refund delays. These communications frequently contain links to fake websites designed to steal your information.
Tips to Spot and Avoid These Scams:
- The IRS does not initiate contact through email, text, or social media.
- Avoid clicking on links or downloading attachments from unknown sources.
- Verify communications by contacting the IRS directly through their official website or phone number.
Spoofed Calls: Why Caller ID Can’t Be Trusted
Scammers can manipulate caller ID to make it appear as though a call is coming from a legitimate source, such as the IRS. These “spoofed” calls often involve threats of arrest or penalties unless immediate payment is made through irretrievable methods like gift cards, peer-to-peer payments, or wire transfers.
How to Protect Yourself:
- Remember, the IRS usually initiates contact with taxpayers through mail.
- Hang up immediately if a caller demands payment or threatens legal action.
- Report the incident to the IRS and the Federal Trade Commission (FTC).
Spear Phishing and Fake Refund Scams
Spear phishing involves highly targeted emails or messages that use personal information to appear legitimate. Scammers may use stolen client data to file fraudulent tax returns or lure you into transferring refunds to their accounts.
In fake refund scams, fraudsters pose as IRS debt collectors and demand that you “return” a fake refund issued in your name. They use fear tactics like threatening to blacklist your Social Security number to force compliance.
Prevention Tips:
- Never share your tax software login credentials.
- Validate any unexpected communications directly with the IRS.
- Be cautious with emails requesting urgent action, even if they appear to be from trusted sources.
Ghost Tax Preparers: The Dangers of Unethical Services
Ghost tax preparers are individuals who prepare your taxes for a fee but refuse to sign the return, leaving you vulnerable if inaccuracies are discovered. These preparers often promise large refunds but use fraudulent information to inflate your returns while taking a portion of them. They then disappear and leave you at risk of audits and penalties.
How to Avoid Ghost Preparers:
- Verify your tax preparer’s credentials.
- Never sign a blank or incomplete tax return.
- Ensure your preparer signs the return and includes their Preparer Tax Identification Number (PTIN).
Protecting Your Personal and Financial Information During Tax Season
Tax season is a prime time for scammers seeking to exploit sensitive information. Protect your personal and financial data by ensuring your passwords are strong and unique for all accounts. Avoid sharing Social Security numbers or banking details unless absolutely necessary, and only through secure and verified channels. Be cautious of phishing emails, smishing texts, and vishing calls that claim to be from the IRS or other authorities.
Why Filing Early Can Deter Fraudsters
Filing your taxes as early as possible is one of the most effective ways to prevent tax-related identity theft. Fraudsters can use stolen Social Security numbers to file fake tax returns and claim refunds before you do. By filing early, you reduce the opportunity for scammers to act and ensure your legitimate return is processed first. In this case, the earlier you file, the better.
The Importance of Secure Filing Methods
Using secure methods to file your taxes is essential for protecting your information. Opt for electronic filing through trusted and verified software platforms, as they offer encryption to safeguard your data. If you file by mail, avoid leaving returns in residential mailboxes. Instead, drop them off at the post office to prevent theft.
Steps to Take If You Suspect Tax Fraud
If you believe you’ve been a victim of tax fraud:
- Contact the IRS: Report the suspected fraud immediately by calling the IRS Identity Protection Specialized Unit.
- File an Identity Theft Affidavit (Form 14039): This informs the IRS of the fraud and helps protect your tax account.
- Monitor Your Credit Reports: Check for unauthorized activity to detect broader identity theft.
- Freeze Your Credit: Consider freezing your credit reports to help prevent new accounts from being opened in your name.
How to Safeguard Your Identity After a Breach
If your information has been compromised, take immediate steps to protect yourself:
- Change passwords for all sensitive accounts.
- Enable two-factor authentication wherever possible.
- Monitor your financial accounts and credit reports regularly for unauthorized transactions.
- Contact the Federal Trade Commission (FTC): File an identity theft report to establish a record of the incident.
Utilizing an Identity Protection PIN (IP PIN)
An Identity Protection PIN (IP PIN) is a six-digit number issued by the IRS to prevent unauthorized use of your Social Security number on fraudulent tax returns. This PIN is renewed annually and is known only to you and the IRS. To request an IP PIN, use the IRS’s secure Get an IP PIN tool. By implementing this layer of security, you can gain extra peace of mind during tax season.
Partnering With Latitude 32 Credit Union for Long-Term Financial Security
When you bank with Latitude 32 Credit Union, you’re not just opening an account—you’re forming a partnership for your financial future. Our team is dedicated to empowering you with the knowledge and resources to achieve long-term security. Whether you’re saving for a major life goal or navigating the complexities of fraud prevention, we’re here to help you every step of the way.
Let Latitude 32 Credit Union be your trusted partner in building a secure financial future.