Tax season is upon us. While taxpayers consider this a time to take care of business, criminals are on the prowl, looking for ways to score. With millions of dollars circulating and countless transactions occurring, some individuals have developed complex schemes to scam unsuspecting citizens out of their tax refunds — from stealing checks and hacking into bank accounts to filing fraudulent returns and claiming refunds.
Being aware of what’s happening, what to watch out for, and what to do if you encounter a con are the best ways to protect yourself from harm.
Common Tax Refund Scams
Staying informed about tax refund scams is more crucial than ever. Fraudsters take advantage of a lack of awareness, crafting schemes that might appear legitimate at first glance. Understanding the mechanics behind these scams can help you recognize and avoid them. Below, we explore some prevalent tax refund scams to keep on your radar.
Phishing Emails and Fake Websites
Phishing emails are deceptive messages designed to appear as if they're sent by reputable entities like your bank, employer, tax preparer, or even the IRS. Their goal? To lure you into disclosing personal and financial information under the guise of official communication. These emails cleverly ask for your login details, account information, or other sensitive data, putting your tax refund at risk.
The trick often leads you to a counterfeit website that looks identical to an official one, prompting you to enter your credentials. Unfortunately, this action directly delivers your information to the fraudsters. The deceit might not be immediately obvious; some fake sites are sophisticated enough to make you think a minor glitch occurred, leading you to dismiss any suspicion.
You may also encounter fake websites on social media, online searches, or even recommendations from unsuspecting acquaintances. They may offer seemingly helpful services, such as checking your refund status or promises of expedited refunds, all designed to lower your defenses.
Phone Scams
Much like their phishing counterparts, phone scams aim to extract personal information by masquerading as legitimate entities. These calls, often appearing to come from a familiar area code or displaying a trusted name on caller ID, employ tactics to earn your trust.
Scammers may introduce themselves as employees of your bank, the IRS, or another reputable business and may already know some of your personal details, such as your full name, address, or employer. Their strategy involves requesting additional information under the guise of verifying your account or personal details, with the ultimate goal of accessing your tax refund.
Be especially wary of calls that use intimidation or urgency to prompt action, such as warnings of delayed refunds or penalties if you don’t immediately give them the information they’re requesting.
Identity Theft
Identity theft is a year-round threat, but it peaks during tax season. Among the preferred tactics of criminals is mail theft, targeting tax documents and refund checks being sent through the mail. Fraudsters may use your personally identifiable information (PII) gleaned from stolen mail to file a tax return in your name, fudging the numbers and redirecting the refund to themselves through an alternate address or account.
What to Watch Out For
Despite efforts by authorities to combat tax scams, criminals are unrelenting in their efforts to cheat people out of their hard-earned money. Here’s what to look out for.
Unrealistic Promises
If it sounds too good to be true, it probably is. Beware of anyone offering guaranteed or unusually large refunds. Legitimate tax preparers don’t make inflated promises; these are often signs of deceptive practices.
Requests for Personal Information
Before sharing personal information, double-check that the website you’re using or the person you’re communicating with is legitimate. Rather than clicking on a link in an email, manually type the company’s known website address into your browser. Rather than sharing information with someone who calls you, hang up and call the business back directly using their official phone number.
Pressure Tactics
Scammers will attempt to create a sense of urgency, so you’ll bypass your better judgment. Remember, reputable organizations like your bank, a legitimate tax professional, and even the IRS will not pressure you to make quick decisions or share sensitive information hastily.
Unusual Payment Methods
Scammers prefer hard-to-trace methods like wire transfers, gift cards, or payments through third-party services. No matter how legitimate a call, email, or website may seem, any request for payment through a method that seems out of the ordinary should raise immediate red flags.
What to Do if You’re the Victim of a Tax Scam
Don’t let panic or embarrassment keep you from taking action to protect yourself when you suspect you’ve been scammed. Tax refund schemes are common, on the rise, and becoming increasingly sophisticated, and even the most prudent taxpayers can fall prey to these criminals. Here are steps you can take if you think you may have been the target of a tax scam:
Report Suspicious Activity
If you believe you’ve been scammed, report it as soon as possible. Complete an IRS Identity Theft Affidavit (Form 14029) so they can open an investigation, file a report with law enforcement, and consider filing a complaint with the Federal Trade Commission (FTC). Don’t forget to notify your state and local tax authorities as well, because if identity thieves have access to your federal tax information, they may also be able to file state or local tax returns. To help stop any unauthorized federal tax filings in your name, you can obtain an IRS Identity Protection PIN (IP PIN).
Contact Your Financial Institutions
Advise your financial institutions that your personal information has been compromised so that they can monitor your accounts for fraudulent activity. Update the passwords for any potentially compromised accounts using strong passwords that aren’t easy to guess.
Protect Your Credit
Review your credit report at all three credit bureaus (Experian, Transunion, and Equifax). Look for any accounts or credit inquiries that you don’t recognize, and close any accounts that were opened in your name fraudulently. Have a fraud alert placed on your credit report at all three agencies so that anyone accessing your credit information will be required to verify your identity first. Finally, consider placing a credit freeze on your reports. This will lock your credit report so that no new accounts can be opened in your name without you first lifting the freeze.
Stay Vigilant to Protect Against Scams
As tax season unfolds, remember that criminals target unsuspecting taxpayers. Understanding their tactics, spotting the early signs, and being prepared to act swiftly if targeted, turn you into a formidable guardian of your own security. Extend this protection to your loved ones as well, especially the elderly, who are often in the crosshairs of such schemes.
If you're feeling unsure or need guidance navigating the complexities of tax season and safeguarding against fraud, we're here to help. Reach out to us for personalized support and strategies designed to help protect your financial well-being.
John J. Diak, CFP® is the Principal & Client Wealth Manager at Oatley & Diak, LLC in Parker, Colorado. He assists clients through many difficult lifestyle changes such as business downturns, retirement planning, divorce, the death of a spouse, and family estate issues among others. Oatley & Diak, LLC is a family-run registered investment advisory (RIA) firm that provides clients with investment management and financial planning services in a hands-on, intimate environment. Learn more about them at oatleydiak.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.