Don't Be Next! How to Recognize a Tax Scam

Amy Woodward, CPA (Feb, 2015)

Cell phones, computers and tablets have all contributed to making life easier and more convenient.  Everything from banking and shopping, to even filing your taxes can be accomplished with just the click of a button.  Unfortunately, this technology has also made it easier for all of us to fall subject to hackers and scam artists.  The world of taxes has not been exempt from these types of scams, therefore, it is becoming increasingly important for taxpayers to be aware of what the scams are and how to avoid becoming a victim.

Each year, the IRS releases a list of their "Dirty Dozen" Tax Scams.   Until recently, the majority of this list consisted of ways taxpayers try to scam the IRS such as understating income, overstating deductions, and filing for tax credits they aren't entitled to in order to claim a larger refund.  For the last couple of years, however, this list has been increasingly taken over by ways that people try to scam taxpayers.  Just 5 years ago, only one such scam made the list, but this year the top 3 scams all relate to ways that scam artists try to con their victims into sending them money, defrauding them of their refunds, or collecting personal information.

The single most prevalent scam is phone calls that taxpayers receive from those claiming to be IRS agents.  The taxpayers are told that they owe large amounts of taxes, penalties and interest, and the scammers demand payment from them.  They may even threaten the taxpayers with arrest or deportation.  In other cases, the calls are made to inform people that they have a refund they are entitled to and the scammers promise to mail out the check once the taxpayer gives their personal information as verification.

One of the most important things to remember to avoid this trap is that the IRS will not contact a taxpayer by phone to demand payment or even to issue a refund.  It is the policy of the IRS to mail out notices regarding payments or refunds prior to any phone calls being made to the taxpayers.  In addition, the taxpayer has the right to appeal a tax notice within a set period of time, so demands for immediate payment over the phone should be regarded as suspicious.  Also, if the caller threatens the taxpayer with arrest if they do not pay, this is a red flag that the call is a scam.  The IRS will send a balance due to collections if payment is not made after several notices and bills are sent.

The next scam to top the IRS list is Phishing, a scheme that is usually accomplished through emails to the taxpayers or fake websites that have been set up to look legitimate.  Although it is spelled differently, phishing is meant to do exactly what it sounds like: the scammers are "fishing" for information that they can use to steal a taxpayer's identity.  They request personal or financial information, again under the guise of the taxpayer owing the IRS money or being due a refund.  

As with the first scam, it is important to remember that the IRS will generally initiate contact through the mail.  Emails will never be the first means of correspondence, nor will text messages or social media.  Also, it is important to never click on any links or open any attachments contained in these emails as they could contain viruses.  Instead, you can forward any suspicious emails to

Rounding out the top three scams is identity theft.  More and more taxpayers each year are attempting to electronically file their legitimate returns, only to find that their social security number has already been used to file a return.  Unfortunately, identity theft is a complex area and while the IRS is working hard to catch those who have used stolen identities to claim refunds, this continues to be a growing area.  If taxpayers find that they have been a victim of identity theft in regards to their tax returns, the taxpayer can file Form 14039, Identity Theft Affidavit.  The IRS will then issue the taxpayer an Identity Protection Pin that the taxpayer can use to file their returns to ensure that refunds are not delayed or additional taxes are not assessed as a result of the taxpayer's identity being stolen.

In addition to using the phone and phishing scams to obtain a taxpayer's personal information, a person's identity can be stolen any number of ways such as through computer viruses and hackers.  The best way to avoid this one is the same way one would avoid identity theft while online shopping, banking, or conducting other activities where sensitive information is given out.  Using firewalls and anti-virus software, making sure passwords are complex and changed periodically, and not giving out personal information on the phone or computer until the source has been verified are all steps to prevent identity theft from occurring.

With all of the scams that are out there, the best defense for a taxpayer is knowledge.  Knowing what the scams are and learning to recognize potential threats can insure that the taxpayer doesn't give out the personal information over the phone, doesn't click on an unsafe website link received through email, and doesn't become a victim of identity theft.  Learn to recognize the signs and you can protect yourself from being the next victim!  The tax professionals at Dermody, Burke and Brown are always available to assist you with any tax scam questions. 


The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.

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