While fraud is a 24/7/365 peril, tax season creates a prime opportunity for criminals to prey on already tax-weary consumers. Tax filing can be daunting and confusing, making people anxious about making sure they follow all the rules and don’t run afoul of any government agencies. Scammers know this and try to take advantage of those fears.
“There are many bad actors out there who know how to take advantage of people stressed about filing their taxes,” said Howard Silverstone, CPA and member of the AICPA Fraud Task Force. “This year could be even worse, with so many people having been isolated for so long by the COVID-19 pandemic.”
Tax scams have become so routine that the IRS lists its “Dirty Dozen” tax scams annually to help taxpayers protect themselves. Basic awareness of these schemes can help consumers protect themselves against fraud as well as learning some best practices to follow whenever dealing with highly personal financial matters.
Most tax scams involve a form of identity theft. And the greater reliance on online shopping over the last year has increased the chances for ID theft.
Here are some common scams to be aware of during the 2020 tax filing season.
The federal government’s Coronavirus Aid, Relief and Economic Security (CARES) Act provided $2 trillion to support the economy through the COVID-19 pandemic. One of the main areas of support was increased unemployment benefits, worth an additional $600 a week for many.
Scammers took advantage of this and claimed undeserved unemployment benefits, often using stolen identities. As a result, many individuals are now receiving Forms 1099-G indicating they received unemployment when they did not.
The problem is that unemployment benefits are considered taxable income by the federal government and 45 states, and the IRS expects those receiving Forms 1099-G to pay the appropriate taxes.
“It can be very disconcerting to get a notice that you received unemployment benefits when you never applied,” said Silverstone. “But this is not something that should be ignored, and people who received these forms need to take action immediately.”
Because unemployment is issued at the state level (even though it is federally funded), individuals receiving these forms should contact their state unemployment agency to receive a corrected Form 1099-G and report any potential fraud. If you did claim unemployment benefits in 2020, it is still a good idea to double-check that the amount reported on Form 1099-G is accurate.
Threatening phone calls
Scammers often use threatening phone calls to try to scare people into sharing personal information or sending them money.
The calls, which can be a recording or a live person, typically claim that you owe taxes and failure to pay immediately will result in penalties, property being seized, or being arrested and facing jail time. But unless you’ve received an official letter from the IRS, it’s safe to ignore these calls.
“The IRS sends a warning letter first,” said Silverstone. “They do not call or email you with threats.”
This is critically important to remember. And if in doubt, hang up the call and do some investigating on your own or reach out to a qualified CPA to help. The IRS has an online tool that allows taxpayers to see everything reported from wages and interest income, estimated payments, notices sent and collection activities on your account.
Or if you prefer to confirm, give the IRS a call. Keep in mind the wait times right now are really long, but aim to call early in the morning and accept the “call back” option if offered.
Phishing scams involve sending fake emails or text messages to individuals to try to steal personal information or convince you to send payments.
It’s generally good practice to not click on links from any emails or texts from unknown individuals or organizations. Be aware that many phishing emails attempt to look like they come from the real organization. If you are ever unsure, simply go to the organization website by typing the web address into your browser instead of clicking the link.
Silverstone notes that because most tax scams are simply a form of identity theft scams, you should remain vigilant about protecting your identity by avoiding clicking links in unsolicited emails and texts, monitoring your credit report, and locking your credit if needed.
Additionally, adopt a rule to NEVER give out any personal information to an incoming requester.
If someone comes to your door or calls you unsolicited and says Superman-speed internet can be yours with just a few bits of financial information, take a step back. Gather the company information, the sales representative name and ID number (to ensure proper commissions are given for a sales job well done), and the product and discount codes, and take that information to investigate the company, the product, and the promises to make a well-thought-out buying decision on your timeline and your terms.
Criminals or just bad characters hate it when people take control, and they may react strongly. This should be your second clue that this is not someone you want to do business with.
Once you make a promise to yourself that this is a rule you will not break, it is very easy to just say no when someone approaches with an offer. Your response to every single pushback is, “This is my policy and I don’t break it for anything”.
And when in doubt about a letter, email or phone call, it is best to check with a CPA tax expert to help you determine the best course of action for your tax needs.