Each year, the IRS warns taxpayers about the “Dirty Dozen” tax scams. Some of these cons show up on the list each year, while others are new. Tax scams are most common during tax season or times of crisis. The COVID pandemic created opportunities to try steal money and information from taxpayers.
Taxpayers are reminded to beware of these ongoing swindles that include:
- Phishing involves fake emails or websites to obtain personal information. The IRS never initiates contact by email. Do not click on links claiming to be from the IRS. Also be wary of keywords, such as “coronavirus,” “COVID-19,” and “Stimulus.”
- Fake charities are a reoccurring concern. Criminals often take advantage of natural disasters and other situations, such as the COVID-19 pandemic, to set up a phony charity, and may even claim to be working with the IRS to help victims.
- Threatening impersonator phone calls claim to be collecting money for the IRS. The scammer uses fear and urgency to demand immediate payment. Senior citizens and their caregivers should be especially alert for this type of fraud.
- Unscrupulous return preparers, called “ghost” preparers, expose their clients to serious filing mistakes and tax fraud. Ghost preparers do not sign the tax returns they prepare, as required by law. While most tax professionals provide honest service, others should be avoided.
- Fake payments with repayment demands involve scammers tricking taxpayers into sending them their refund. The criminal steals or obtains personal data to file a bogus tax return. Once the money is in the bank account, the criminal poses as an IRS employee to request that the money be returned immediately, perhaps in the form of gift cards.
Some recent tax scams that have surfaced include
- Offer-in-compromise mills involves misleading tax debt resolution companies exaggerating their ability to settle tax debts for “pennies on the dollar.” The offer requires that taxpayers meet certain legal requirements. Dishonest businesses enroll unqualified candidates to collect hefty fees from taxpayers already deep in debt.
- Economic impact payment or refund theft, in which criminals filed false tax returns or bogus information with the IRS to redirect refunds to a wrong address or bank account.
- Social media scams may use COVID-19 to trick people. The scammer uses information on social media to send emails pretending to be a family member, friend, or co-worker, which can result in tax-related identity theft.
- Ransomware takes advantage of human and technical weaknesses to infect a computer, network, or server. Invasive software (malware) can track keystrokes and other computer activity. An infected computer can allow access to personal and financial data. Or, a ransom request appears in a pop-up window.
To avoid these scams: (1) be aware of potential cons; (2) check with the IRS or your bank if something is suspicious; (3) keep your computer system and passwords secure, and (4) avoid deals that are “too good to be true.”
For additional information on tax scams, click here.
- Have students describe these situations to other people, and ask them what actions they might take to avoid these scams.
- Have students create a video or visual presentation to warn others of these potential scams.
- Why do some people get taken by tax scams and other frauds?
- Describe actions that might be taken to avoid various tax scams.
Banking options continue to expand. Neobanks refer to financial services providers that appeal to information-hungry consumers comfortable with technology. Many are FinTech start-ups that offer checking and savings accounts, debit cards, loans, and budgeting guidance through digital channels and mobile apps.
Neobanks typically do not have physical bank locations, although some partner with existing banks or credit unions. Some consider PayPal an early neobank example as a result of being linked to bank accounts and payment cards. More recent examples of neobanks include GoBank (a brand of Green Dot Bank), SoFi Money, Varo Money, Wells Fargo’s Greenhouse, and Chase’s Finn.
Commonly viewed benefits of neobanks are:
- lower costs than most traditional financial institutions; access to large ATM networks with no fees.
- attractive to underbanked and unbanked consumers who use prepaid cards, check-cashing services, and consumer credit companies.
- clear communication of fees and charges; usually no overdraft penalties since you can only spend what is in your account,
- enhanced technology for basic banking activities as well as algorithms for budgeting, money management, and wise spending.
- ease of loan approval with technology-based methods for obtaining credit, along with access to loans by smaller enterprises.
Some concerns associated with neobanks include:
- a lack of physical bank branches.
- may not be chartered as financial institutions with government regulators, also lacking deposit insurance.
- no recourse may be available when malfunctions occur with an app or mobile connection.
- not appropriate for individuals who make cash payments and deposits.
As banking alternatives evolve, neobanks will likely become more numerous expanding into new products and services. At the same time, traditional financial institutions will seek ways to offer FinTech products to serve an expanding technology-oriented customer segment.
For additional information on neobanks:
- Have students propose services that might be offered by neobanks to enhance financial literacy and improve money management skills.
- Have students create a video or in-class presentation that communicates the positive and negative aspects of neobanks.
- What actions would you recommend to others before using a neobank?
- Describe possible actions that might be taken by traditional financial institutions to counter the potential loss of customers to neobanks.
Each year, more than 1.5 million taxpayers obtain refund anticipation loans (RALs). This year, the number may be higher as a result of the government shutdown. While, RALs provide faster access to your money, they come with high fees and should only be used as a last resort. These “cash advances” are a potential for scams; before using these loans, take these actions:
- Assess the cost. While some national tax chains promote this service as a “free” cash advance, fees may apply for applying for the advance, checking your credit, and transferring the money to you. Costs for your refund advance check range from $29 to $65. If your refund is on a prepaid debit card, there will likely be additional fees.
- Beware of loan terms based on timing. Additional charges may occur if your refund is delayed.
- Compare other options. Seek less expensive, small-dollar, short-term loans from a community bank or credit union, or a zero-percent credit card. A $35 charge to defer a $350 tax preparation fee for two weeks has an APR of 174 percent.
- To avoid late fees for bills, contact your creditors. Utility companies and medical providers may offer no-cost extensions or no-cost payment plans.
Always be sure you are doing business with a reputable tax preparer. Check credentials and references. Avoid tax preparers who charge fees based your refund amount, or who deposit your refund in their bank account. Another fraudulent activity is filing false information to increase the amount of the refund.
For additional information on tax refund advances, click here.
- Have students search online for costs for refund anticipation loans.
- Have students prepare a video presentation on avoiding refund anticipation loans.
- What advice would you give a person planning to obtain a refund anticipation loan?
- How might community organizations and government agencies assist people who are considering a refund anticipation loan?
According to its last Consumer Sentinel report, the Federal Trade Commission received 371,061 identity theft complaints in 2017, down from 399,222 the previous year. That’s good news, but the 2018 Identity Fraud Study issued by Javelin Strategy & Research tells a darker tale. Based on random survey of Americans, it revealed that there was an 8 percent increase in identity fraud (the fraudulent use of someone’s personal information) from 2016 to 2017, and losses rose from $16.2 to $16.8 billion. Javelin also notes that while the chip cards have cut down on fraud terminals or by cloning devices, the drop has been more than offset in online theft and fraud.
For More Information, click here.
- Ask students if anyone has his/her identity stolen. If so, what has been their experience?
- Ask students to prepare and then share a list of steps that they can take to reduce chances of becoming identity theft victims?
- How can you detect if you are a possible victim of an identity theft?
- If you become a victim of identity theft, what steps must you take immediately?
“On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act.”
Fact: Most Americans wonder how the current wave of tax reform will affect them. This article by Kimberly Amadeo summarizes how the Act changes the amount of income tax that both individuals and businesses pay.
Significant changes in the Act for individuals include
- Lower tax rates (highest rate in 2017 was 39.6 percent drops to 37 percent in 2018) could mean an increase in the amount individuals take home each payday.
- Personal exemptions ($4,150 in 2017) per person are eliminated.
- The standard deduction almost doubles for a single person ($6,350 in 2017) to $12,000. For married and joint filers the standard deduction ($12,700 in 2017) is now $24,000.
- More taxpayers will opt to take the standard deduction instead of itemizing deductions.
- For those taxpayers who choose to itemize, many itemized deductions that were previously allowed have been eliminated.
- Taxpayers who itemize can still deduct charitable contributions, most mortgage interest, retirement savings, and student loan interest.
- Taxpayers who itemize can still deduct up to $10,000 in state and local taxes.
For businesses, the largest and most signification change is lowering the maximum corporate tax rate from 35 percent to 21 percent beginning in 2018.
The article does provides more specific information about how the Tax Cuts and Jobs Act affects both individuals and businesses.
For more information, click here.
You may want to use the information in this blog post and the original article to
- Discuss how the Tax Cuts and Jobs Act will affect a single college student or a typical American family.
- Explore how lower corporate taxes could impact economic growth, worker salaries, unemployment rates, job creation, and other factors that impact both the nation and individuals.
- Given the information contained in this article and other reports, do you think the Tax Cuts and Jobs Act is good for you? Explain your answer.
- For an individual, what effect does lower taxes have on your spending, savings and investments, and retirement planning?
Are you looking forward to getting your tax refund in the New Year? Tax identity thieves may be looking forward to getting your refund too. That’s why the Federal Trade Commission has designated January 29-February 2, 2018 as Tax Identity Theft Awareness Week.
Tax identity theft happens when someone uses your Social Security number (SSN) to get a tax refund or a job. You might find out it’s happened when you e-file your tax return and discover that a return already has been filed using your SSN. Or, the IRS may send you a letter saying more than one return was filed in your name, or that IRS records show you have wages from an employer you don’t know.
Learn to protect yourself from tax identity theft and IRS imposter scams, and what to do if someone you know becomes a victim. The FTC and partners including the IRS, the Department of Veterans Affairs, and the Treasury Inspector General for Tax Administration will be co-hosting free webinars and Twitter chats during Tax Identity Theft Awareness Week. Visit ftc.gov/taxidtheft for details about the events and how to participate.
For more information, click here.
- Ask students if filing early may avoid e-file tax identity theft fraud if someone files before they do.
- Ask students what steps should they take if their identity is stolen?
- How can one protect from tax identity theft and IRS imposter scams?
- What can you do if you or someone else you know becomes a victim of identity theft?
The Internet has made our lives easier in so many ways. However, you need to know how you can protect your privacy and avoid fraud. Remember, not only can people be defrauded when using the Internet for investing; the fraudsters use information online to send bogus materials, solicit or phish.
Here’s what you can do to protect yourself when using social media:
Privacy Settings: Always check the default privacy settings when opening an account on a social media website.
Biographical Information: Consider customizing your privacy settings to minimize the amount of biographical information others can view on the website.
Account Information: Never give account information, Social Security numbers, bank information or other sensitive financial information on a social media website.
Friends/Contacts: Decide whether it is appropriate to accept a “friend” or other membership request from a financial service provider, such as a financial adviser or broker-dealer.
Site Features: Familiarize yourself with the functionality of the social media website before broadcasting messages on the site. Who will be able to see your messages — only specified recipients, or all users?
For More Information, click here.
- Ask students to make a list of their social media accounts. How do they protect their accounts from fraudsters?
- Why do many social media websites require biographical information to open an account?
- Why is it important to limit the information made available to other social media users?
- Is there an obligation to accept a “friend” request of a service provider or anyone you don’t know or do not know well?
- Why be extra careful before clicking on a link sent to you even if by a friend?
Recently, there have been numerous calls from the “IRS” threatening you with lawsuits or jail sentences unless you pay up immediately. Don’t be a victim. The IRS doesn’t initiate contact with taxpayers by e-mail, text message or social media channels to request personal or financial information. This includes requests for PIN numbers, passwords or similar access information for credit cards, banks or other financial accounts.
Remember, the IRS will never
- Call to demand immediate payment, nor will the agency call about taxes owed without first sending you a bill.
- Demand that you pay taxes without giving you the opportunity to question or appeal the amount.
- Require you to use a specific payment method for your taxes, such as a prepaid debit card.
- Ask for a credit or debit card number over the phone.
- Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
For more information,click here.
- Ask students if they have received a call from the “IRS” impersonators. If so, what was their response?
- Have students visit irs.gov and click on Tax Scams/Consumer Alerts to learn what the agency is doing to stop these annoying calls.
- What should do if you get a phone call from someone claiming to be from the IRS and you know you don’t owe any taxes?
- Who should you contact to report such calls from the imposters?
You get a call from a scammer pretending to be with the IRS, threatening you’ll be arrested if you don’t pay taxes you owe right now. You’re told to wire the money or put it on a prepaid debit card. The scammer might threaten to deport you or say you’ll lose your driver’s license. Some scammers even know your Social Security number, and they fake caller ID so you think it really is the IRS calling. But it’s all a lie. If you send the money, it’s gone.
The Federal Trade Commission advises that if you get illegal sales calls, robocalls, or fake IRS calls, it’s best to ignore them. Don’t interact in any way. Don’t press buttons to be taken off the call list or talk to a live person or call back. When you have a tax problem, the IRS will first contact you by mail. The IRS won’t ask you to wire money, pay with a prepaid debit card, or share your credit card information over the phone. If you get fake calls, file a complaint with the Treasury Inspector General for Tax Administration at tigta.gov. You also can file a complaint with the FTC at ftc.gov/complaint. If you’re concerned there’s a real tax problem, call the IRS directly at 800-829-1040.
For more information, click here.
- Ask students to make a list of steps that taxpayers can take to protect themselves from tax scammers.
- Why do scammers prey on the most vulnerable people, such as the elderly, newly arrived immigrants and those whose first language is not English?
- What can the IRS and other governmental agencies do to catch and punish criminals impersonating IRS agents?
- How can taxpayers protect themselves from scam artists?
- What should you do if you believe you owe federal income taxes?
Scammers are taking advantage of millions of consumers who haven’t yet received a chip card. For example, scammers are e-mailing people, posing as their card issuer. The scammers claim that in order to issue a new chip card, they need to update your account by confirming some personal information or clicking on a link to continue the process. Information received can be used to commit identify theft. If they click on the link, they may unknowingly install malware on your device.
How can you tell if the e-mail is from a scammer?
- There is no reason your card issuer needs to contact you by e-mail or by phone to confirm personal information before sending you a new chip card number.
- Still not sure if the e-mail is a scam? Contact your card issuers at phone numbers on your cards.
- Don’t trust links in e-mails. Only provide personal information through a company’s website if you typed in the web address yourself and you see that the site is secure, like a URL that begins https (the “s” stands for secure).
For more information, click here.
- Ask students to visit other identify theft websites, such as, consumer.gov/idtheft, to learn what to do if your identity is stolen.
- Ask students to compile a list of what actions can they take to ensure that their credit/debit cards and other financial information are secure.
- How do you discover that someone has stolen your identity?
- What steps can you take to thwart identity thieves?