All it takes is your name and Social Security number – and a thief can file a tax return and get the refund you deserve.
Tax-related identity theft is a growing problem, according to the Taxpayer Advocate Service, an independent organization that assists taxpayers from within the Internal Revenue Service. In 2011, the service received more than 34,000 reports of tax-related identity theft cases, a 97 percent increase over the previous year.
The IRS has taken steps to deal with the problem, including a national crackdown in 2012 on 105 suspected identity thieves in 23 states, a sweep announced by the Justice Department. The sweep resulted in 939 criminal charges and 69 indictments.
In a press release earlier this month, the IRS named its "Dirty Dozen" tax scams for this year, and phone scams are leading the list. The list is compiled by the IRS each year, and lists scams that can happen at any time, but seem to peak during tax season.
The Dirty Dozen are as follows:
• Identity theft – Tax fraud is at the top of the list. Identity theft is defined as when another person uses your personal information, like your Social Security number, to commit fraud. This time of year, it's common for thieves to use the Social Security numbers of others to file false tax returns and claim the refunds.
If you have filed your taxes and have not received your refund, you may wish to contact the IRS so that action can be taken to make sure no one else has filed a return in your name, and so that your tax account can be secured.
• Telephone scams – This type of scam is also ever-increasing. Callers will say you owe money or are entitled to a refund. You may even be threatened with arrest or the revocation of your driver's license. When it comes to tax-related scams, the caller will use a fake name and IRS badge number, and may even know the last four digits of your Social Security number.
If you receive such a call, remember the IRS will not contact you by telephone regarding your tax return or a refund – the agency will contact you via a letter. If you get a phone call from someone claiming to be from the IRS, report the incident to the Treasury Inspector General for Tax Administration at 1-800-366-4484 or file a complaint with the Federal Trade Commission at www.ftc.gov.
• Phishing – This is a typical scam that utilizes unsolicited e-mail or a fake website to lure people into providing personal and/or financial information, which is then used to commit identity theft.
If you receive an unsolicited e-mail that appears to be from the IRS, report it by sending the link to email@example.com, but do not click on any links. It should be noted that the IRS does not contact taxpayers by e-mail, nor would the agency request personal or financial information.
• False promises of "free" money from inflated refunds – This is a common scam during tax season, which scammers use to promos large tax refunds beyond what a person is expecting or has earned. The scam utilizes flyers, advertisements, phony storefronts and even word of mouth. The larger refunds are based on fictitious Social Security benefits and false equation credits, Earned Income Tax Credit or the American Opportunity Tax Credit.
• Return preparer fraud – Unscrupulous tax prepares will use the information provided to file a tax return for identity theft or refund fraud. Make sure you choose a preparer who signs your return and has a legitimate IRS Preparer Tax Identification Number. For help choosing a tax preparer, go online at http://www.irs.gov/uac/Newsroom/IRS-Offers-Advice-on-How-to-Choose-a-Tax-Preparer.
• Hiding income offshore – Many people avoid paying taxes by hiding income in offshore banks, brokerage accounts or nominee entities, and then use debit or credit cards, or even wire transfers to access the funds. It can be legitimate to maintain accounts abroad, but there are reporting requirements. If an individual does not comply with these requirements, it could mean significant penalties and fines, and even criminal prosecution.
• Frivolous arguments – Scammers will encourage taxpayers to make unreasonable and outlandish claims in order to avoid paying the taxes they owe. These scammers use books, websites and e-mails to inform taxpayers about these arguments. But doing so can lead to penalties and/or criminal prosecution. To learn more about these scams, go online at http://www.irs.gov/Tax-Professionals/The-Truth-About-Frivolous-Tax-Arguments-Introduction.
• Impersonation of charitable organizations – Scammers often use false charitable groups, particularly after a natural disaster, to get money or personal information from well-intentioned people. You may be solicited by telephone or e-mail, and asked for your Social Security number or banking information.
To be sure your avoid this scam, donate to recognized charities, and beware of those you are unfamiliar with. Don't give out your personal or financial information. Don't give or send cash. When you do contribute, do so by check or credit card so you have documentation of the gift.
• False income, expenses or exemptions – Claiming income you didn't earn or expenses you did not pay could have serious repercussions, including criminal prosecution.
• Falsely claiming zero wages or using false Form 1099 – Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Don't fall prey to claiming deductions or credits to which you are not entitled, or allow others to use your information to file false returns.
• Abusive tax structures – Some foreign jurisdictions and offshore financial institutions lend themselves to abusive tax structures, including taxpayer schemes to evade taxes.
• Misuse of trusts – Dishonest promoters urge taxpayers to transfer large amounts of assets into trusts, which are then used for illicit purposes. Taxpayers should seek the advice of a trusted professional before entering into a trust arrangement.
To contact editor Angye Morrison, call 382-4321.