April 15. The date fills many consumers with dread, since it marks the IRS tax filing deadline. For tax scammers, however, Tax Day equals (ill-gotten) profits. That’s why NCL is encouraging consumers to be extra-vigilant against predatory – or downright fraudulent – tax-related offers. Tax-related scams come in a variety of flavors. Here are a few of the more common variations:
Tax-related ID theft
Identity thieves have also increasingly sought to profit from their scams by filing fraudulent tax returns. According to the Federal Trade Commission Tax or wage-related fraud has also been the fastest-growing way that identity thieves misuse victims’ information since 2009. In 2011, the IRS’ Taxpayer Advocate Service received more than 34,000 tax identity theft cases, a 97 percent increase over 2010.
One of the more insidious dangers of this type of ID theft is that consumers may not become aware of it until they receive a note from their accountant or the IRS itself stating that their personal information has been misused (often to steal tax refunds or to apply for jobs).
While there is no fool-proof way to protect your identity, the IRS recommends several steps:
- Don’t carry your Social Security card or other information with your Social Security number (SSN) with you;
- Don’t give businesses your SSN just because they ask for it. Give it only when required;
- Check your credit report every 12 months and challenge unusual activity;
- Keep personal information in your home secure;
- Protect your personal computer with firewalls, anti-virus software, security patches and change your passwords regularly;
- Don’t give out personal information over the phone, mail or the Internet unless you know who you’re dealing with.
Tax relief scams
Around Tax Day, consumers would be wise to heed Benjamin Franklin’s old adage that “nothing can be said to be certain, except death and taxes.”
Consumers who owe back-taxes may be desperate to avoid the financial hit cutting a big check to the IRS may entail. Unfortunately, there are a multitude of fraudsters who claim that for an (often sizable) upfront fee, they can free taxpayers from having to pay the IRS. Others claim to be able to settle debts to the IRS for pennies on the dollar.
For example, in 2010, the FTC halted a scam run by a company called American Tax Relief (ATR) that had duped consumers out of more than $60 million. ATR claimed to be able to “free” consumers from tax liens, wage garnishments, levies and “unbearable monthly payments for up-front fees of $3,200 to $25,000. In fact, ATR provided little if any tax-relief for its clients
A complaint to NCL's Fraud Center is illustrative of how these scams work. “Stephen” was worried about the money he owed the IRS. He contacted a company that assured him he would be work with tax attorneys who would settle his debt. Stephen sent them his personal information and tax returns from previous years. One week later, the company said they couldn’t help Stephen, but wished him “luck”. When Stephen asked for a refund for the $9,500 fee he paid via credit card, the company hung up on him.
Instead of paying big up-front fees to shady tax-relief firms, consumers who are having trouble paying taxes should contact the IRS or their state comptroller. The IRS’s Taxpayer Advocate Service is an independent office within the IRS that provides free help to consumers having trouble paying their federal taxes. Consumer experiencing difficulties paying state taxes should contact the National Association of State Auditors, Comptrollers and Treasurers (NASAA) to get guidance on how to get help from state tax authorities.
Tax preparer fraud
Millions of consumers turn to tax-preparation firms or personal accountants to help them file their taxes. While most of these companies provide a valuable and completely legitimate service, there are countless instances where fly-by-night tax-preparation outfits come in to town, hang out a shingle, and then disappear after charging outrageous fees for tax-preparation services.
According to the IRS, consumers should beware of tax preparation firms that claim they can obtain larger refunds than other preparers, who base their fee on a percentage of the amount of the refund, who ask consumers to sign a blank tax form, who refuse to provide a preparer tax identification number or provide copies of your tax returns.
Unfortunately, many tax-preparation scammers target certain neighborhoods, often with high concentrations of immigrants or low-income consumers.The 70 percent of consumers with adjusted gross incomes of $57,000 or less can take advantage of the IRS’s FreeFile service, which provides access to free tax preparation and filing services.
Other tax scams
The variety of tax scams is limited only by the imaginations of unscrupulous scam artists.
“Pattie” reported to NCL that she responded to a tax refund company’s advertisement – receive a tax refund directly deposited into one’s bank account within 8-11 days for only $99! She provided her routing number when filling out the paperwork. The company told her that there was a delay but that her direct deposit was being processed. After following up with her bank, Pattie learned that the company had rerouted her deposit into their account – leaving her without a refund and helpless.
Tax scams are often variations on phishing schemes: the victim receives a phone call from an “IRS employee” offering a tax refund – however, they need the taxpayer’s checking account number, he or she is told, in order to deposit the money. Alternately, the victim gets an email claiming to be from the IRS – often with a realistic-looking sender address – stating that the consumer is due a refund and needs to click on a link and enter their personal financial information in order to have it processed.
Fake stimulus money
Con artists contact their victims claiming to be government representatives calling to initiate payment transfer of impending government tax “rebates,” often related to the 2009 government stimulus bill. Victims are urged to provide bank or credit card account numbers to receive these rebates, sensitive information which is then misused to drain these accounts.
Consumers should remember: the IRS does not use e-mail to initiate contact with taxpayers about issues related to their accounts. If a taxpayer has any doubt whether a contact from the IRS is authentic, the taxpayer should call the IRS customer service toll-free number (1-800-829-1040) to confirm it.