Yahoo Finance How to Avoid Tax Scams
The IRS recently released its "Dirty Dozen" list of tax scams for 2017, and it includes fake charities, email phishing scams and even frivolous tax arguments, where the taxpayer refuses to pay taxes on religious or moral grounds.
Two perennial threats that pop up year after year: tax ID theft, where a shyster files a falsified return using someone else's Social Security number, and scammers posing as IRS agents and threatening deportation or arrest if the person doesn't pay up.
[See: Answers to 7 Burning Tax Questions.]
These tax scams can happen at any point in the year, but scammers are out in full force in the lead-up to April 18. U.S. News talked to several tax experts to find out how taxpayers can protect themselves against tax ID theft and other scams.
File as early as possible. Though it's not always feasible to file early, as you might be waiting for tax forms from an investment account or your accountant could be backed up, getting a head start can prevent someone else from filing first and delaying your tax refund. "The second return to get filed is going to be rejected," says Nathan Rigney, a senior tax research analyst at The Tax Institute at H&R Block. " Filing earlier can help prevent you from becoming a victim of tax identity theft," he explains.
Fortunately, the IRS is becoming more aware of this problem. Sometimes clients are notified by the IRS that they've received a return already, which is considered suspicious "because it's totally difference than what you filed before," says Paul Gevertzman, a tax partner in accounting firm Anchin, Block & Anchin. However, if someone has your Social Security number and other details, he may try to commit other types of identity theft such as opening fraudulent credit cards in your name, so it's easier to prevent this problem than remediate it later.
Choose your tax preparer wisely. The IRS states that return preparer fraud, an instance where someone sets up shop to steal Social Security numbers or file falsified returns, is one of the most common problems on its "Dirty Dozen" list. Ask for the person's preparer tax identification number (PTIN) and search the Better Business Bureau for any complaints. You can see on your local BBB.org website if the preparer or tax firm has any unresolved complaints from consumers.
Send documentation securely. Most tax preparers have no ill intent, but as hackers get more sophisticated, there's another question you should ask potential tax preparers: Do you have a secure way for me to send you tax documents? Simply emailing scanned tax forms to your accountant or enrolled agent isn't ideal, because if someone gets access to your email account or your accountant's email address, he will have much of the info needed to steal your identity.
"People send me their information sometimes totally unprotected and you're really taking a chance because there are people out there intercepting that information," Gevertzman cautions. H&R Block has an online portal called MyBlock where customers can upload and store documents securely; other tax firms have similar tools. For example, accounting firm Friedman LLP uses a portal called CCH Axcess.
[See: 7 Most-Missed Tax Deductions and Credits.]
Be wary of phone calls, emails and snail mail. Fraudsters have gotten much more sophisticated in their ability to create official-looking emails, letters and caller ID that spoofs the IRS. But anytime someone claims to be from the IRS, don't give out personal information or allow the person to intimidate you.
"The IRS is never going to make initial contact by telephone," says David Shuster, director of international tax controversy services at Friedman LLP. "If you get a fax or an email or a telephone call from the IRS and it's the first communication, you should be wary," he says.
Sometimes fake IRS agents reach out via social media channels such as Facebook or LinkedIn and that should be an immediate red flag. Another telltale sign: if someone demands payment via iTunes gift cards. If this happens to you, do not engage with the individual. The IRS does not accept gift cards as payment, but scammers use this strategy so the money is less trackable.
The IRS does communicate by mail, so you can't automatically dismiss snail mail. Shuster suggests sharing any letters with your tax preparer before you take any action. "If the letter purports to be something saying, 'We're disallowing your mortgage interest deduction' and you show it to your accountant, your accountant might [relay that] you didn't take a mortgage interest deduction," he explains. "Maybe you also want to check for grammar and syntax. If there's spelling errors or poorly worded language, that's a tip-off," Shuster adds.
Don't carry around your Social Security card. Unless you're specifically going to fill out paperwork for employment or some other reason, never carry your Social Security card in your wallet. "If someone gets your Social Security card and your name and your date of birth, they can file a tax return in your name," Rigney says.
[See: 12 Habits to Help You Take Control of Your Credit.]
Unfortunately, much of your personal information (name, birth date, address and Social Security number) is already stored in databases by the hospitals you visit and the employers you work for. "In that case, if there's a breach, there's really nothing you can do to prevent it," Rigney says. "You can reach out to the IRS directly by filing a form and requesting a PIN. But that only protects you for the following tax season," he says.
As they say, an ounce of prevention is worth a pound of cure.
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