Latest Tax Scams to Spot and Avoid This Tax Season

As a law-abiding citizen, you are probably now focused on fulfilling your taxpayer responsibilities. Unfortunately, it’s a prime season for scammers, and they are looking for unsuspecting people to take advantage of.

Billions are lost each year to tax scammers both in federal and income tax returns. As we approach a new tax season, you want to know how to protect yourself against the latest fraud activities.

Key Insights

• According to the IRS, over $5.5 billion was lost in tax fraud in 2023.
• Other scams to beware of include IRS impersonation scams, phishing emails, identity thefts, and fraud related to tax refund advances and tax software. 
• To protect yourself, take preventive measures, such as getting an Identity Protection Personal Identification Number (IP PIN) at the beginning of the tax season or using reputable tax software and keeping it up to date.

7 Red Flags of Tax Scams

Below are 7 red flags to watch for to avoid common tax scams this season:

1. Unsolicited emails, texts, or calls from the IRS. Jeff Rose, , a certified financial planner, author, and blogger of GoodFinancialCents.com, warns, “Consumers need to know the IRS will NEVER reach out to you via email or text to demand a payment. This is a major red flag.” Therefore, if you receive any unsolicited emails, messages, calls, or voicemails from IRS agents are most likely from scammers. Especially, if they are demanding payments or your personal information.
2. Urgency and aggressive tactics. If someone contacts you on behalf of the IRS and threatens legal action, fines, or asks you to make payments immediately, they are likely fraudsters.
3. Fake tax filing websites. As Ann Martin, Director of Operations of CreditDonkey, notes, “The IRS website actually has a listing of available tax filing sites. If the site you're looking at isn't listed there, this is definitely a red flag.”
4. Demands to pay via unusual payment methods. The IRS only accepts the following payment methods: credit cards, debit cards, or a digital wallet through a payment processor. If someone asks you to pay with gift cards, wire transfers, or cryptocurrency, it is a scam.
5. Tax refunds or relief promises that are too good to be true. The tax company or relief service cannot guarantee how much the IRS will refund you. As Max Avery, Capital Markets & Securities Analyst (CMSA) at Syndicately.com, recommends, “Be cautious of unexpected refund promises or requests for personal information.” You should “always verify the legitimacy of any communication by directly contacting the official tax agency.”
6. Being asked to sign blank or partially filled out tax return forms. Scammers may falsify information or claim undeserved deductions on your behalf, potentially leading to legal and financial consequences. Always check and review tax forms to ensure all information is accurate.
7. Not being given a copy of your returns, if using third-party services. If you are not provided with a copy of documents, it may be considered a red flag as it doesn't allow you to review the information and verify its accuracy. Always insist on getting a copy of your tax returns.

Latest Tax Scams This Season

Let's take a closer look at the most common tax scams to look out for.

Tax identity theft 

This is the most rampant tax scam. According to the IRS, over 1 million tax returns in 2023 were flagged for possible identity theft, which happens when someone gains access to your sensitive information and uses it for their own selfish purposes. During tax season, scammers may use it to file returns on your behalf. Then, they proceed to seek tax refunds but provide their bank details for the money to be channeled there.

In a recent TurboTax review #4436425, one taxpayer shared their experience of how “someone filed my taxes under my name.” Fraudsters “changed the bank and phone number” and took their money. As a result, this consumer lost $3,200. 

Tax filing support scams

Many people find the tax filing process complex, so they opt to work with a tax preparer. However, you need to be aware of the increasing number of scammy tax preparers, especially during the tax season.

The fake tax experts often advertise themselves aggressively on social media and offer too-good-to-be-true benefits such as bigger refunds, cheap filing service fees, and fast processing.

One Reddit discussion highlighted how so-called "Facebook tax pros" promise huge refunds to unsuspecting clients and then disappear once the IRS flagged the fraudulent filings. 

Typically, scammers do not include their names or PTINs, leaving their victims to face audits and thousands of dollars in repayments for refunds they should never have received by themselves.

Source: reddit.com

Tax software scams

There are various tax prep services and software that may help you to file your taxes. The most common ones include TaxAct, TaxSlayer, TurboTax, and H&R Block. Filing taxes requires you to provide valuable personal and financial information. A breach in the tax filing software allows scammers to access this data. While most users trust tax services and the various software companies promise optimal privacy, there have been multiple cases of data breaches. 

According to Harrison E. James, attorney at Wisner Baum,

A 2023 U.S. Senate report named H&R Block, as well as TaxAct and TaxSlayer, for recklessly sharing tens of millions of taxpayers’ sensitive personal and financial data with Google and Meta, without users' consent and without disclosing that they were doing so. This is sensitive information about people's income, dependents, alimony, child support, tax deductions, home addresses… 

Usually, tax software are easy and convenient to use, generally requiring you to sign up for online accounts. However, consumer insights indicate some issues with these platforms, as evidenced by several TurboTax reviews on PissedConsumer.

For example, one frustrated customer in their TurboTax review #4983667 couldn’t understand why their tax return status didn’t change. And their attempts to get help from customer service failed:

Customer service is basically a canned robo that tells you to call the IRS…I filed a simple tax return March 15, 2023 and it is now August 21, 2023. NO status change on my return from the IRS. It is still "processing”

Email phishing scams

Typically, phishing emails contain a link or attachment, which is malware or spyware. Once you open the link or attachment, the malware or spyware is installed on your device, and scammers can read your personal and financial information. 

However, nowadays this type of scam has significantly evolve. As artificial intelligence continues to advance, scammers are getting smarter and using it to create more sophisticated phishing scams. They use AI tools to generate phishing emails and messages that closely resemble official IRS or tax service communication. 

In other cases, scammers use AI-generated voices to make phone calls and leave voicemails posing as IRs agents. They may demand immediate payment of unpaid taxes threatening legal action. 

At the same time, another expert, Max Avery, says:

…more insidious trend involves the use of deepfake technology. Fraudsters can manipulate audio and video to convincingly impersonate tax authorities, making it crucial for taxpayers to verify communication channels meticulously.

IRS impersonation scams

In the case of IRS impersonation, scammers pose as IRS agents and call taxpayers. The fraudsters often use fake names and bogus IRS identification badge numbers in an attempt to verify their credibility.

They may then ask you to provide personal and financial information such as your name, social security number, and bank details. Or, they may claim that you owe the IRS or that there is a problem with your tax refunds. They create a sense of urgency and ask that you provide your information or make payments to have the issue resolved.

One user shared on Reddit how they almost fell for an IRS impersonation scam:

I got a call from a Washington, D.C. number yesterday with an automated message telling me it was the "Criminal Investigation Division" of the IRS, and to call them back immediately.

When they called back, the supposed IRS agent told the customer that all their assets had been frozen and that their accounts had been blacklisted. Luckily, the reviewer was able to pick up on the scam when the fake IRS agent told him to pay the tax debt using a grocery store gift card. According to Jeff Rose:

Scammers are getting more sophisticated, using emails and texts that look like they're from the IRS or legitimate tax companies. They often create a sense of urgency, like claiming there's a problem with your tax return or refund. And the scary thing is how legit these emails and messages look! 

Tax refund advance scams

Tax refund advance scams involve fraudulent offers promising immediate access to tax refunds before tax authorities like the IRS issue them. Scammers may target taxpayers eager to receive tax refunds quickly, especially during tax season. 

According to Robert Farrington, a money expert and founder of TheCollegeInvestor.com, 

Tax refund advance scams are increasing and taking advantage of consumers who aren’t aware of this tactic. These scams often involve promises of quick cash in exchange for personal and financial information.

How to Stay Safe While Filing Taxes

Below are some actionable tips to avoid tax scams and secure your personal and financial information during the tax filing process:

1. Use only reputable tax software and ensure that it is up to date. Attorney, Harrison E. James, recommends that you, “do your homework so that you know which companies have been named in connection with these kinds of unethical practices.” He then encourages consumersto “check the websites of these companies to see if they’ve installed the Meta Pixel or Google Analytics.” As the expert explains, “If the Meta Pixel or Google Analytics is on the pages that prompt you to input data, I recommend steering clear of that company.”
2. Install anti-malware and anti-spyware software and ensure that they are up to date. Also, set up two-step authentication for your email account. 
3. Request for an Identity Protection Personal Identification Number (IP PIN) from the IRS at the beginning of the tax season. You will be issued with a unique 6-digit number that you provide when filing taxes. If a scammer attempted to file taxes on your behalf, they would not be able to complete the process without the IP PIN.
4. If you receive a call from scammers posing as IRS agents, hang up immediately. Do not provide your personal or financial information to anyone, either through the phone, email, or text.

How to Report Tax Scams

To know how to protect your consumer rights is essential for getting positive customer experiences. Speaking about the ways to report tax scams, these are recommended organization to do it:

• IRS website. If you receive spam emails, report them to the IRS by forwarding them to phishing@irs.gov. For IRS impersonation calls, submit a complaint on the IRS impersonation scam reporting portal.
• Federal Trade Commission (FTC). Report tax scams through the FTC online complaint assistant at https://reportfraud.ftc.gov/.
• File a complaint at your state Attorney General’s office.

Be Vigilant

Whether you are filing your income or federal tax returns, you must be cautious and protect yourself from potential scams. Be well informed about common tax scams, how they present, and how to protect yourself. In case, you fall victim, report to the relevant authorities such as the IRS, FTC, or your state attorney.

Have you encountered tax scammers? Share your experience with other users.