Forbes

5 Tips For Protecting Yourself From Tax Scams

Three things in life are certain: Death, taxes and tax scams.

From text messages claiming to be from the IRS to phone messages threatening you with arrest for taxes you allegedly owe, fraudsters are on the hunt for new victims.

Last year, taxpayers lost more than $4 million to scammers pretending to be the IRS, with a median loss per complaint of $515, according to reports made to the Federal Trade Commission (FTC).

But this is only the amount reported lost; the actual total may be much higher.

Tax scam calls ramp up in the month prior to tax day, and scammers will make more than 2 billion calls in the week before Tax Day, according to data from First Orion, a communications firm that offers branded caller identification for businesses.

Getty / Forbes Advisor

Why Are We Susceptible to Tax Scams?

Most of us are unfamiliar with the tax code, explains Kent Welch, chief data officer at First Orion, which makes us worried we’re going to do something wrong when we submit our annual income tax return. “And so now when everybody’s vulnerable, those scammers prey on that,” he says.

In a March survey, the company found that 40% of consumers would expect the IRS to email them if there was an issue with their tax refund or payment amount, and 30% of consumers would expect the IRS to call.

But the IRS primarily communicates by mail. It rarely calls or visits taxpayers, and it never sends emails or text messages.

“My clients frequently call me in a panic because they have been made to believe the IRS has called them to request payment or to otherwise threaten them,” says Gena Jones, founder and CEO of tax and accounting firm Jones Tax Group.

There’s a lot you can do to protect your identity and finances from tax scams. But first, it’s helpful to know how these scammers work.

Types of Tax Scams

1. Tax Return Fraud

The reason you hear you should file your tax return as early as possible is because someone else can file a return in your name and steal the refund you’re expecting.

You may not realize someone has filed a fraudulent tax return until you eventually go to file yours and discover that “you” have already filed.

“Unfortunately, criminals can leverage snippets of information to file a fraudulent return and can do so without even accessing a W-2,” says Troy Gill, senior manager of threat intelligence at Zix, a technology security company.

If someone has gathered enough information to file a tax return for you, like your Social Security number and contact information, it’s almost certain they have enough personal information about you to access other aspects of your identity or finances.

Another type of fraud entails your tax preparer misreporting your refund total to you by giving you a lesser amount than what you’re owed and keeping the rest of the refund for themselves.

The IRS doesn’t keep tabs on how prevalent “ghost” tax preparers are, but the Department of Justice has shut down four tax preparers for unscrupulous practices in 2022 alone.

If your tax preparer doesn’t sign your return or designates it as a “self-prepared” return, beware. Paid preparers are required to sign and not doing so is a major red flag of malicious intent.

2. Phishing Scams

Phishing scams use unsolicited communication to try to get information or money from you—or sometimes both.

You could get a text message or email from “the IRS” telling you to click on a link to check your tax refund or stimulus payment status. But the link leads you to a webpage asking for personal information to steal your identity.

Or you could receive a phone call from someone claiming to be from the IRS about an unpaid tax bill. The caller may even tell you a lot of information about yourself, like your full name or date of birth, to gain your trust.

The IRS primarily uses snail mail to contact taxpayers and never sends texts or emails.

A scammer may need just one additional piece of information to complete a profile on you based on other information they already have, Welch says. “Their tactics are to fluster you quickly and make you make decisions quickly,” he says. “The next thing you know, you’re giving information away.”

A talented scammer may be able to get money out of a victim, too. Welch remembers a “college tax” scam targeting young people last spring.

Scammers would call and say “You didn’t pay all your taxes. You did your return but you didn’t pay the ‘student tax’ for going to school,” he recalls. “And they’d tell you to ‘take care of it right now’ with a credit card, or if you don’t have one, run to Walgreens and get an iTunes gift card.”

How to Stay Safe From Scammers This Tax Season (and Year Round)

1. Just Hang Up

The IRS doesn’t send emails or text messages. It rarely calls, and typically sends multiple letters prior to sending agents to your doorstep unannounced.

And it never demands immediate payment for any amount you might owe.

“Hang up on all callers who begin the conversation with a threat or anything that seems extreme,” Jones says. “Any government agency who wants to communicate with you will send you a letter.”

Don’t give a caller any information. If you want to call the IRS or the company claiming to call you, look up the customer service phone number yourself—don’t rely on the information the person gives you or the number that appears on your phone screen. The number could be spoofed, or disguised, to look like it’s from a legitimate business or agency, Welch says.

Although it’s hard to reach a live human on the phone at the IRS due to limited staffing and high call volume, the best number to call the agency with your tax questions is 800-829-1040.

You can verify your  tax information by setting up and checking your account on the IRS website, which will display your refund status and any amounts you owe.

2. Inspect Letters Carefully

Mikkel Jensen, U.S. director of Ageras, an online marketplace that connects business owners with accountants, says to read any correspondence claiming to be from the IRS carefully.

“Any correspondence that uses threatening, demanding, or aggressive language is a clear indication of a scam,” he says, explaining that IRS correspondence is informative and straightforward, and doesn’t demand payment immediately or via specific methods like prepaid debit cards.

Each type of letter or notice the IRS may send has a corresponding number, which can be checked on the IRS site.

3. Trust Your Gut

If your gut tells you something is off, it’s probably right.

If you’re mid-conversation and you think you’ve given someone too much information, Welch says to immediately hang up and report it to your financial providers like your bank or credit card company.

As soon as a scammer has enough of your personal details, their next step is to try to get your money, Welch says. Notifying your financial providers of a potential problem helps them be on alert for you.

If you find yourself in this situation, you may also want to freeze your credit reports to prevent someone from opening new credit accounts in your name.

4. Get an Identity Protection (IP) PIN

The IRS allows you to set a secret six-digit code called an identity protection PIN, or IP PIN. It’s free, and you can get one after creating an IRS.gov account and verifying your identity.

Once you have your PIN, you’ll use it to sign your income tax return. If someone tries to file a return in your name using your Social Security number or tax identification number, it’ll get rejected without also having the PIN.

The IRS will generate a new pin for you for each year, which you’ll get via mail in December or January.

5. Research Tax Preparers

If you want help preparing your tax return, carefully research potential tax preparers before agreeing to work with one, says Peter Rice, president and CEO of Hanscom Federal Credit Union in Massachusetts.

Rice says to research your tax preparer’s qualifications, as well as how they handle your personal information and keep it secure. Tax preparers must have a preparer identification number (PTIN). When they complete your return, they must sign it and include their PTIN.

If your tax preparer doesn’t have a PTIN, won’t sign your return, says your refund will be deposited to their account, or requires cash-only payment for their services, find a legitimate one.

You can check a tax preparer’s credentials by visiting the IRS preparer directory.

There are several free options for getting tax preparation help, so don’t feel like you have to pay someone who could cause lasting damage to your finances.

How to Report Tax Fraud and Scams

If you suspect you’ve interacted with a scammer, report it.

  • If you get a suspicious email, don’t click on any links or reply. Forward it to [email protected]
  • If you get a suspicious phone call, email [email protected] with the subject line “IRS Phone Scam.” Include details about the call, including the phone number and any instructions the caller gave you on the call or left in a voicemail.
  • If you get a suspicious text message, don’t click on any links or reply. Forward it to the IRS at 202-552-1226. Send a separate text to the same number to provide the originating number.
  • If you suspect your tax preparer is acting maliciously, report them to the IRS with IRS form 14157.
  • If you discover someone has filed a fraudulent return in your name, file an identity report online and learn about your next steps at identitytheft.gov.