The IRS just released its annual “Dirty Dozen” list of tax scams that taxpayers should take steps to avoid this filing season. At the top of the list is identity theft. This widespread scam typically involves stealing taxpayers’ personal information to fraudulently file tax returns and claim refunds. The experience can become a nightmare, as thieves gain access to your Social Security number, credit cards and bank accounts, among other things, leaving you financially vulnerable, says Rip Mason, CEO of LegalShield, a legal services and identity theft protection provider.
The IRS says it has expanded its efforts this year to protect taxpayers from ID theft by assigning more than 3,000 employees to prevent refund fraud, investigate identity-theft-related issues and help taxpayers who have been victimized. Since 2011, the IRS says it has stopped 14.6 million suspicious returns and prevented more than $50 billion in fraudulent refunds. (Read more about IRS anti-fraud efforts.) That's the good news. The bad news is that in 2011, the latest year for which figures are available, more than 1 million fake tax returns got past the safeguards, resulting in about $3.5 billion in fraudulent refunds.
Clearly, taxpayers still need to take their own steps to protect their identity and guard against fraud during tax season. Most of the top 12 tax scams involve efforts to steal taxpayers’ personal information or their money. So here’s what you should do to lower your risk of becoming a victim of any of these scams.
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Ignore unsolicited e-mails from the IRS. A common way identity thieves will try to steal your personal information is to send e-mails claiming to be from the IRS and informing you that you’re owed a refund, Mason says. The e-mail will ask that you provide your bank account number or other personal information so you can receive your refund. But any request for personal information should be a warning sign that the e-mail is a scam, Mason says. Furthermore, the IRS says it never initiates contact with taxpayers by e-mail, text message or social media. So do not reply to unsolicited e-mails or messages supposedly from the IRS, open any attachments (which could contain viruses) or click on any links (which could take you to a fraudulent Web site). Forward all suspect e-mails to phishing@irs.gov.
Hang up on suspicious callers claiming to be from the IRS. The IRS has seen an increase in phone scams in which callers will claim to be IRS agents. The scammers typically tell taxpayers that they are entitled to a refund or owe money to the IRS. In instances when the callers say that money is owed, they typically threaten taxpayers that they must pay immediately or be arrested. (See IRS Warns of New Phone Scam for more information.) Don't reveal any personal information if someone calls and claims to be from the IRS. Instead, call the IRS at 1-800-829-1040 to see if an agent has a legitimate need to contact you.
Beware of too-good-to-be-true claims. It’s common during filing season to see or hear ads from people or companies promising large refunds or special tax benefits for certain groups. Despite what you might hear, there is no free money to be had from the IRS, Mason says. Also be wary of tax preparers that offer fast refunds because what they’re likely providing is an advance on your refund – in other words, a loan – with a high interest rate, Mason says. If a preparer doesn’t ask for your proof of income and eligibility for tax credits, won’t sign a return or include his preparer ID number (PTIN), these are signs that he may be a scam artist. Rather than respond to an ad, do your own research to find a legitimate tax preparer. The IRS has tips to help you choose a preparer. If your adjusted gross income was $58,000 or less in 2013, you may be eligible for the IRS Free File program. (See Do Your Federal Tax Return for Free for more information.)
Protect your personal information. Tax returns are a gold mine for scammers and identity thieves, Mason says. Make sure you keep them in a secure location, such as a locked home safe or safe-deposit box. Electronic forms should be stored on a password-protected or encrypted external drive or disk. Use strong passwords that include upper and lowercase characters, numbers and symbols such as *, ! and &.
Also make sure you receive all the tax forms, such as W-2s and 1099s, you expect to get. Sometimes documents are stolen from mailboxes and used to file fraudulent returns. If you fail to receive any forms, contact the company or financial institution that was supposed to send them to find out if and when they were mailed. If you suspect that any of these forms were stolen from your mailbox, contact the IRS Identity Protection Specialized Unit at 800-908-4490.
If you expect to receive a refund this year, opt for direct deposit to avoid lost or stolen checks. However, the best way to make sure your refund check doesn't end up in the wrong hands is to NOT have a refund coming in the first place. To adjust how much Uncle Sam is taking out of every paycheck, use our tax withholding calculator to find out how many allowances you should be claiming on the W-4 form filed with your employer so you can get your money when you earn it – not in a refund next spring.