Top tax scams and how to avoid them

Consumer Reports

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The deadline for filing your 2011 income tax return with the Internal Revenue Service is April 17 this year. But hackers and thieves are already hard at work, developing schemes to scam you out of valuable info—Social Security numbers, bank accounts, and other financial data—and money.

The IRS has released its 2012 "Dirty Dozen" tax scams—tricks used by crooks to steal unsuspecting taxpayers of money and information as well as try to fool the U.S. government of tax revenue. Consumers should be aware of these schemes criminals use to victimize taxpayers:

Identity Theft

According to the IRS, crimes that use stolen bits of personal information are on the rise. But incidents of ID theft peak during tax time. If you’ve been victimized from a previous identity theft incident, criminals could still try to use your information to file a phony tax return that nets the crook a real refund check, but leaves you holding the bag.

Anyone who believes his or her personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit. For more information, visit the special identity theft page at www.IRS.gov/identitytheft.

For ID theft prevention tips, see Consumer Reports Guide to online security.

Phishing

A bogus but very official-looking IRS e-mail goes out, telling the recipients that they need to comply with an obscure part of the tax code or they’ll be smacked with a huge penalty. To resolve the matter, all they need to do is click on the e-mail’s embedded link that takes them to a website which asks for their personal information.

The IRS reminds everyone: The agency never contacts a taxpayer electronically, and all such requests for information are scams. If you receive such an unsolicited e-mail or text message or other electronic request, report it to the IRS by sending it to phishing@irs.gov.

Do you think you can spot a fake website, phishing for your information? Take our test.

Return Preparer Fraud

Questionable tax return preparers have been known to skim off their clients’ refunds, charge inflated fees for tax-preparation services, and attract new clients by promising guaranteed or inflated refunds.

According to the IRS, you could be dealing with an unscrupulous return preparer if they:
  • Do not sign the return or place a Preparer Tax identification Number on it.
  • Do not give you a copy of your tax return.
  • Promise larger than normal tax refunds.
  • Charge a percentage of the refund amount as preparation fee.
  • Require you to split the refund to pay the preparation fee.
  • Add forms to the return you have never filed before.
  • Encourage you to place false information on your return, such as false income, expenses and/or credits.
The IRS has advice and Tips for Choosing a Tax Preparer at its official website: www.IRS.gov.

"Free Money" from the IRS & Tax Scams Involving Social Security

This is the "carrot" approach to scammers’ phishing schemes. Instead of threatening penalties, official-looking documents and e-mails promise tax credits or refunds under obscure tax rules or little-known Social Security rebates or other "loopholes." Again, all taxpayers need to do is enter their personal information on a phony website.

The IRS warns taxpayers to consult the agency’s website (www.IRS.gov) or trusted, qualified tax professionals regarding eligibility on tax refunds and rebates.

Check out Consumer Reports’ Money section for more helpful tips, such as Eight ways to avoid tax-time headaches.

IRS Releases the Dirty Dozen Tax Scams for 2012 [IRS] Phishing and Other Schemes Using the IRS Name [IRS]

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Copyright © 2008-2012 Consumers Union of U.S., Inc. No reproduction in whole or in part without written permission.

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