Common Types of Tax Fraud
Unfortunately, there are loads of ways people and corporations can cheat the government out of its taxes. The IRS tells people to be on the lookout for people or businesses involved in things like kickbacks, faking exemptions or deductions, altering documents, failing to report income or not properly withholding taxes. It also issues an annual "Dirty Dozen" list of the year's most common forms of tax fraud. The 2020 Dirty Dozen list included:
- Phishing: Someone obtains your personal or financial information via a fake website or email that appears legitimate. Once your identity is nabbed, it's used for tax fraud.
- Fake Charities: Criminals set up fake charities to fool good-hearted people into contributing, often during crises such as the COVID-19 pandemic.
- Threatening Impersonator Phone Calls: You receive a call, supposedly from the IRS, demanding immediate payment for a fake tax bill. The caller (sometimes a robocall) often threatens arrest, deportation or license revocation.
- Social Media Scams: While these take many forms, they basically involve someone contacting you by social media and convincing you that they're a close family member or friend. The person may rip you off, or access your contacts to send fake emails and texts about a false charity.
- EIP or Refund Theft: In 2020, a lot of this theft involved identity theft, where fraudsters filed fake tax returns to snag other people's refunds or Economic Impact Payments (EIP) related to COVID-19 aid.
- Senior Fraud: There are a wealth of scams aimed at senior citizens, many of which involve fake emails, text messages, websites and more, all trying to get seniors to reveal personal information.
- Scams Targeting Non-English Speakers: Much like senior citizens, scammers target people who don't speak English proficiently. Many are via threatening phone calls involving deportation or jail if the person doesn't pay a fake tax bill.
- Unscrupulous Return Preparers: Tax preparers may your personal info to commit tax fraud or identity theft. Of special concern are ghost preparers, or those who don't sign your return after preparing it, a sign something is amiss.
- Offer in Compromise Mills: Offer in Compromise (OIC) is a legitimate program that helps thousands reduce their tax debt every year. However, many people don't qualify for the program. If you have tax debt, scammers may try to get you to pay them for assistance in applying for the OIC program, even though they know you won't qualify.
- Fake Payments with Repayment Demands: A scammer steals your personal info, files a fake tax return and has a refund deposited into your checking or savings account. Then the criminal calls you and pretends to be an IRS agent, saying there's been an error and you must repay the amount just deposited into your account. But the scammers don't want the money back; they ask for specific gift cards totaling the amount of the refund. You send the cards, and then the IRS and/or bank realize the fraud and take back the money in your account, too.
- Payroll and HR Scams: These scams vary, but two common ones involve getting you to purchase gift cards for the crooks and fooling your employers to change your direct deposit information so the money goes into their account, not yours.
- Ransomware: This cybercrime involves malware that infects your computer, network or server, stealing your critical or sensitive data.
Be aware of those trying to hook you into one of these schemes, because if you sign off on an erroneous return -- even unwittingly -- you're legally responsible.