3 Tips to Avoid Tax Season Scams

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The call came a few weeks after I returned to the U.S. from South Africa. It almost got me.

It must have been early morning, because I was still getting ready to head for the train station. “Is this Edward?” said the voice, “Edward Bauman?” Yes, it was. “Well, Edward, I’m calling to let you know that you owe the U.S. Department of Education over $25,000. You have 72 hours to make payment arrangements, failing which you will be sued and your possessions preemptively attached under U.S. Code (garbled). Do you have a credit card number handy that you can give me to stop this from happening?”

Given that “my possessions” had just arrived on a container ship and were in customs in Savannah, Georgia, the timing couldn’t have been worse. Did they know that? Is that why they were calling me? Could they intercept my shipment?

Thankfully, it didn’t take me long to recognize the scam. I had no long-lost student loans from the early 1980s. This enterprising scammer scoured credit reporting bureaus looking for “reactivations” — Social Security numbers that had suddenly reappeared after years of absence. There is always a good chance that someone who’s been off the grid that long had a debt they were trying to avoid … scaring them might get them to hand over a credit card number.

At tax time, we’re all marks for this sort of thing.

Insult to Injury

What’s worse than the IRS taking your hard-earned money? A scammer pretending to be the IRS doing the same thing. Indeed, the IRS says at least 4,550 victims have paid over $23 million to fraudsters in the last few years. And that’s just the folks who reported the losses.

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How do the scammers do it? By researching their victim first, then using that insight to create panic and/or to boost trust. They obtain just enough information about you to sound credible, then swoop in for the kill. And they use brutal scare tactics: One New York comedian was told, “There is a warrant for your arrest. You face five years in federal prison. We have canceled your driver’s license.”

Increasingly, tax scammers use brokers who buy and sell consumer information stolen from corporate data breaches in underground “dark net” forums. A recent hack of Anthem Health Insurance, for example, affected 78.8 million people. Indeed, medical providers such as hospital groups are becoming one of the biggest sources of such information, since they have such shoddy data security.

Forewarned Is Forearmed: Avoiding Tax Season Scams

Here are five common tax season scams to watch out for:

  1. Phone scamming: Like my fake Department of Education debt collector, scammers impersonating IRS agents call taxpayers and try to scare them into sending an immediate payment. The typical scam involves an unsolicited call from what appears to be a Washington D.C. number. The caller sounds Indian or Middle Eastern, where scammers use Internet cafes to disguise their phone number. From there, the caller threatens to arrest the victim unless they send thousands of dollars, often to Bank of America accounts.
  1. Phishing: Scammers disguise a malware-laced email as a legitimate message, hoping that you’ll click on links and offer up your personal and financial information to the resulting website. Phishing emails usually mimic messages from reputable organizations that actually do ask for users’ financial information. The email links may also allow the scammers to install malware or other malicious software on your computer in order to capture your personal and financial information.
  1. Identity theft: Last year the IRS got into major trouble when scammers used its automated tax transcript service to obtain thousands of taxpayers’ tax information and file returns for 2015 that claimed tax refunds. The IRS sent these refunds to the scammers’ own bank accounts listed on the fake 1040 forms.
  1. Bogus tax preparers and “free money” scams: Scammers who prey on lower-income folks often promise inflated tax refunds based on fake calculations of various tax credits, like the child tax credit or the earned income tax credit. They get the mark to hand over a percentage of the promised refund upfront, then disappear, leaving the taxpayer liable for filing false return information.
  1. Fake charities: Genuine contributions to registered charities are tax-deductible. That creates an opportunity for scammers to pretend to be charities, issuing fake receipts for your “donation.” If the IRS checks the registration details of the “charity,” you’ll be on the hook for the unpaid taxes and penalties for filing false information.

Common Sense

One reason I regularly write about digital privacy is to create awareness of these tax season scams. My advice during tax season is simple:

  • The IRS says it never calls taxpayers to demand an immediate payment without first sending a bill in the mail. And it won’t require you to pay in a particular way (like with a credit card) or threaten to involve law enforcement.
  • Don’t click on links in any emails purporting to be from the IRS and asking for your financial information. They never do that. Just delete the email.
  • Never use a tax preparer, or donate to a charity, without checking at least three independent references.

Finally, if you think you might be a target for fraud, enter the email address you use for online commerce and other risky things — you DO have one of those, right? — into a site like HaveIBeenPwned.com. The site will search through breached databases to find out if it’s been compromised.

After all, it’s bad enough having to pay the taxman.

Kind regards,
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Ted Bauman
Offshore and Asset Protection Editor