Protect yourself from tax scams

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It's not only the government which gets a lot of money during tax season - crooks do, too. More people are losing money to tax fraud than ever before because criminals are taking advantage of new technology and IRS offers of speedy returns and having refunds issued on a debit card. Swindlers' schemes run the gamut from crooked tax preparers to "free money" offers to identity theft. Here's a guide to what to be on the watch for.

RETURN PREPARER FRAUD -- According to the IRS, about 60 percent of taxpayers hire someone else to handle their annual tax returns. If that tax preparer is a crook, he will not only steal from you but also put you at risk for penalties and prosecution for filing a false tax return. These people make money a number of different ways: Skimming off clients' refunds, charging inflated fees and promising guaranteed or inflated refunds.

You should be very wary if your preparer wants to charge a fee on the amount of the refund instead of the complexity of the return. This gives the preparer an incentive to do illegal things like claiming deductions or dependents that don't actually exist.

Also be careful if they guarantee a big refund. These preparers depend on word of mouth and are hoping people will say, "I got a big refund from this guy." This also gives them a reason to claim illegal deductions. However, if the IRS catches this, it's not just the preparer who is in trouble. You have to sign your own tax return, no matter who prepares it, and this makes you legally responsible for any taxes owed, as well as fees and penalties. So be sure to review your tax forms before you sign them and look for any false claims.

Starting this year, the IRS is requiring all tax preparers have a Preparer Tax Identification Number (PTIN). So any adviser should have one. Don't hesitate to walk away if they can't or won't produce it.

FREE MONEY OFFERS -- Always be wary of these, especially if someone promises tax refunds which are supposedly part of The American Opportunity Tax Credit, originally designed to help people with college expenses. Scammers like to claim the refund is available, even if the person attended college decades ago. These criminals usually look for potential victims at church gatherings because they target senior citizens and people with little or no income who don't usually have to file taxes. However, be aware of this danger regardless of your circumstances. There is no reason to think they will limit themselves to that group

Warning signs of tax scams include:

  • Promises of refunds based on false statements.
  • Unfamiliar companies selling refunds or credits to members of local churches.
  • Internet ads or emails with toll-free numbers. When people call, they are asked for their Social Security number.
  • Homemade flyers or brochures promising credits or refunds for people who are not eligible.
  • Offers of free money without requiring documentation.
  • Promises of refunds for "Low Income - No Documents Tax Returns."
  • Unsolicited offers to prepare a return and split the refund.

IDENTITY THEFT -- While technology has made it easier to file taxes and get returns faster, it has also opened up a new venue for thieves to exploit. One current effort is an email which appears to be from the IRS and installs malicious software which may steal personal information. So far the emails have all had subject lines which are something like: Rejection of your tax appeal; your tax return appeal is declined, or; IRS notification of your tax appeal status.

The solution to this is to remember one simple fact: The IRS never initiates contact with taxpayer about their accounts through e-mail, text messages or other social media. If you get an unsolicited e-mail claiming to come from the IRS, do not open any attachments or click on any links. If you do get one forward it to the IRS at phishing@irs.gov so it can be investigated.

For more information, go to the IRS website by clicking here.

  • Constantine von Hoffman On Twitter»

    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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