Prime Season for Tax Return Fraud, Perhaps Now More than Ever

Tax return fraud seems to be worse amid stimulus payments and COVID-19 programs. Here are some tips for protecting yourself and taking quick action if suspicions rise.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Gloved hand grasping Social Security card: Watch for tax scams
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Key Takeaways

  • Stimulus payments and pandemic-related programs have opened up new ways to target the unwary
  • Tax scams take place year-round, not just at tax time
  • Remember that the IRS doesn’t send unsolicited emails

Tax season is prime time when it comes to scams. However, the IRS warned that tax scams don’t stop when the filing deadline passes. And this year there’s been an uptick in tax return fraud, thanks in large part to the economic impact payments and other coronavirus-related situations

With all the new programs having come online in the last year, even tax professionals have had a hard time keeping up. It’s no wonder the rest of us might have trouble separating real, official offers from the fraudulent ones. 

As you prepare your taxes and look for your stimulus payment, it’s important to remain vigilant. Watch for red flags so you don’t end up on the wrong end of tax fraud.

Tax Return Fraud

During tax season, watch out for tax return fraud. This particular type of fraud uses identity theft to file a tax return in your name. For example, scammers use your Social Security number, name, and birthdate to file a fraudulent tax return. They might claim refundable credits that you’re not eligible for and receive a refund. When you file your own tax return, you’re told that you’ve already submitted your paperwork.

If you’re told that the IRS already has your tax return, you need to file an Identity Theft Affidavit (Form 14039) and take further steps, including filing a complaint with the Federal Trade Commission and making a police report. 

You can reduce the chances that you’ll be a victim of tax return fraud again by applying for a six-digit PIN from the IRS. Once you have this PIN, no tax return with your information can be filed unless it’s accompanied by the PIN. Whether you’ve been a victim of fraud or not, you can reduce the chances of someone filing a fraudulent tax return by getting your paperwork turned in as quickly as possible.

Coronavirus-Related Tax Scams

Understand, too, that there are tax scams related to COVID-19 floating around—and those have been on the rise since 2020. Some of the COVID-19 scams the IRS has warned of include:

  • Text messages that insist the recipient send bank account information to receive their stimulus payments.
  • You might have received a 1099-G reporting unemployment benefits you didn’t receive. Some scammers are claiming enhanced COVID-19 unemployment benefits using various Social Security numbers. If you get a 1099-G, report it immediately.
  • Emails, calls, and other communications that indicate you owe money to the IRS and won’t receive your stimulus payment unless it’s resolved. Economic impact payments can’t be garnished for back taxes.

Be on the alert for shady tax preparers who claim they can get you “special” coronavirus grant money or who have some type of loophole they can help you exploit related to the pandemic. These tax preparers often charge more and disappear after they’ve filed your paperwork—and gotten you in trouble with the IRS for an inaccurate tax return.

Watch for Tax Scam Red Flags

Scammers take advantage of the fact that people are scared of the IRS and worry about what happens if they don’t pay their taxes. On top of that, fraudsters are increasingly sophisticated, so it can be difficult to catch tax scams. However, there are a few red flags to watch out for, as well as some actions you can take to reduce the chances that you’ll be a victim.

  • Unsolicited emails asking for personal or financial information. The IRS doesn’t send unsolicited emails asking for your information. If you receive an email purporting to be from the IRS asking you to send your Social Security number or banking information, it’s a scam.
  • Phone calls threatening your arrest. Some scammers use the phone to leave threatening messages, telling you if you don’t call back and share information, an arrest warrant will be issued. For most taxpayers, even those who owe some money, jail usually isn’t on the table. And the IRS doesn’t make these phone calls.
  • Spoofed numbers. Be aware that scammers can spoof numbers so it looks like they’re calling from the IRS or from your local sheriff’s department. Remember, the IRS won’t call to threaten you or have local law enforcement call and threaten you.
  • Demand for payment via wire transfer or gift card. Watch out for scammers who insist that you make payments using wire transfers or gift cards. Additionally, watch out for emails that give you an online link for payment. When making payments to the IRS, go directly to IRS.gov in your browser or send a check or money order made payable to the U.S. Treasury.
  • Suspension of your Social Security number. Some fraudsters are now claiming that your Social Security number is in danger and will be suspended if you don’t respond immediately. Your Social Security number can only be changed under very specific circumstances and won’t be revoked for nonpayment of taxes.
  • Use of the term “Bureau of Tax Enforcement.” There is no such agency, so if someone contacts you saying they are part of that organization, it’s a red flag.

The IRS uses the U.S. Postal Service for official notices and communications. If you do owe taxes or are being asked to clarify information, you’ll receive the request in your mailbox. You won’t be contacted by phone call, text message, email, or social media.

And websites of official government agencies have a .gov URL, so any official-sounding agency that ends in .com, .net, or other nongovernment top-level domain might not be legit.

How to Report Fraud to the IRS

Like many things in life, the old Ben Franklin adage rings true: “An ounce of prevention is worth a pound of cure.” 

But if you’re the victim of a tax scam, report it immediately to the Federal Trade Commission. Additionally, there’s an IRS Impersonation Scam Reporting web page you can use. Consider freezing your credit if you’ve already given out personal information as a result of a scam or if you’re a victim of a tax refund scam. Monitor the situation closely and work with the IRS to resolve the issue.

Miranda Marquit is not a representative of TD Ameritrade, Inc. The material, views, and opinions expressed in this article are solely those of the author and may not be reflective of those held by TD Ameritrade, Inc.

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Key Takeaways

  • Stimulus payments and pandemic-related programs have opened up new ways to target the unwary
  • Tax scams take place year-round, not just at tax time
  • Remember that the IRS doesn’t send unsolicited emails

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