Tax fraud season: IRS warns of ID theft, charity scams

Accordingly, the Internal Revenue Service has issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

"This tax season, the IRS has stepped up its efforts to protect taxpayers from a wide range of schemes, including moving aggressively to combat identity theft and refund fraud," said IRS acting commissioner Steven T. Miller, in the announcement. "The Dirty Dozen list shows that scams come in many forms during filing season. Don't let a scam artist steal from you or talk you into doing something you will regret later."

Unsurprisingly, given all of those social security numbers flying around during tax preparation, identity theft tops the list. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.

The IRS has not been sleeping on its feet with this: last year it said that it prevented the issuance of $20 billion of fraudulent refunds, compared with $14 billion in 2011. In January it led a coast-to-coast effort against identity theft suspects that resulted in 734 enforcement actions, including 298 indictments, information, complaints and arrests.

But there are other threats as well. The IRS notes that about 60% of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.

The age-old classic phishing threat is still swimming around too. All it takes is one convincing unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

“It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information,” the IRS stressed. “This includes any type of electronic communication, such as text messages and social media channels.”

As for the rest of the list, which includes a number of tax no-nos like hiding money offshore or over-inflating income, a few key fraud tactics stand out.

There are several “free money” offers purporting to be from the IRS making the rounds. Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes promise refunds to people who have little or no income and normally don’t have a tax filing requirement – and are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

“Scammers prey on low income individuals and the elderly and members of church congregations with bogus promises of free money,” the IRS warned. “They build false hopes and charge people good money for bad advice including encouraging taxpayers to make fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.”

There are also a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates. In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return.

Sadly, another long-standing type of fraud are scams that occur in the wake of significant natural disasters. “Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers,” the IRS said.

Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds, then steal personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources.

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