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.
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?
“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?
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?
“Income tax identity theft is a huge problem that is only getting worse.”
According to a 2015 report of the General Accountability Office (GAO), the IRS paid out $5.8 billion in bogus refunds to identity thieves for the 2013 tax year–the latest year that complete data are available. To make matters worse, the actual dollar amount is probably higher because of the difficulty of knowing the amount of undetected fraud.
To combat the problem, the IRS announced a new cooperative effort between the IRS, state tax administrators, and private tax preparation services to fight income tax identity theft. A number of specific steps are outlined in this article. Unfortunately, the experts admit there are additional problems to stopping identity thieves that are not addressed in the new program. In fact, most experts agree that additional regulations are required to coordinate employer reporting of employee wages with Social Security reporting requirements.
For individual taxpayers, bogus tax returns become a very real and personal problem if their social security number is stolen and their personal tax return is flagged by the IRS as suspicious. To help resolve disputed tax returns, the office of the National Taxpayer Advocate, which is an internal watchdog for consumers at the IRS, suggests that you file a police report and then mail a paper tax return with an attached Form 14039–Identity Theft Affidavit with a copy of the police report. In addition to additional documentation, expect that it may take on average 278 days to resolve a claim if you become a victim of income tax identity theft.
For more information, click here.
You may want to use the information in this blog post and the original article to
- Discuss the importance of protecting your personal identity and especially your social security number.
- Stress the importance of monitoring your credit report and all financial documents that could indicate your personal identity has been stolen.
- What steps can you take to protect your personal identity?
- There are a number of credit monitoring services that will help protect your identity. Most charge $75 to $100 or more a year to monitor your financial and personal information. Do you feel this service is worth the cost?
The average federal income refund for this year was nearly $2,900, resulting in tens of billions of dollars ready for use. Instead of spending those funds, financial advisors recommend saving for an emergency fund, retirement, or other household goals. Currently, these refunds represent an amount larger than the average annual personal savings rate of most Americans. Spending the refund on things you don’t need often results in reduced future financial security.
Also, consider reducing your withholding throughout the year. The refund you receive is only getting back money you lent the government over the past year at zero per cent interest. Instead, have an automatic withdrawal sent to your savings each month.
For additional information on saving your tax refund, click here.
- Have students conduct a survey of people to determine how tax refunds are used..
- Have students prepare an analysis of lost interest/earnings by taxpayers who received a large refund each year.
- What are the benefits of receiving a large tax refund?
- What are the drawbacks of receiving a large tax refund?
Phone calls from criminals impersonating an Internal Revenue Service agent are the most common and serious tax scams reported by the IRS. Taxpayers should be aware the IRS never calls demanding payment or to ask for a credit card; the agency will first make contact by mail.
Phishing involves a taxpayer receiving an unsolicited email trying to obtain financial or personal information. These phony emails often look very official with an IRS logo. Tax-related identity theft occurs when a stolen a Social Security number is used to file a tax return for a refund. Fraudulent tax preparation services prey on innocent taxpayers with promises of large refunds. Be sure to investigate the credentials of the tax preparer and make sure the preparer will be available after April 15. Avoid tax preparers who base their fees on a percentage of the refund or promise a large refund.
Other common tax scams include inflated refund claims, fake charities, filing false documents to hide income, abusive tax shelters, falsifying income to claim tax credits, and excessive claims for fuel tax credits.
For additional information on tax scams, click here:
- Have students talk with others to obtain information about actions taken to file their taxes.
- Have students prepare a list of warning signs of tax scams.
- What attitudes and behaviors can result in a person being a victim of a tax scam?
- What actions can taxpayers take to avoid being a victim of a tax scam?
Certain provisions of the Affordable Care Act will probably affect your federal income tax return when you file this year. The law requires that you and each member of your family have qualifying health insurance coverage for each month of the year, qualify for an exemption from the coverage requirement, or make an individual shared responsibility payment when filing your federal income tax return.
Most taxpayers will simply check a box on the tax return to indicate that each member of their family had qualifying health coverage for the whole year. Qualifying health insurance includes coverage for most, but not all, types of health care coverage plans. If you bought coverage through the Health Insurance Marketplace, you should receive Form 1095A, Health Insurance Marketplace Statement from your Marketplace by early February.
For more information, Click Here.
- Ask students to search the Internet to gather more information about the new IRS requirements and the Affordable Care Act.
- What are provisions that might affect an individual and their families?
- What are the reporting requirements when you file your federal income tax return this year?
- How can you determine if you are eligible for an exemption?
- What should you do if you are expecting to receive 1095A and you don’t receive it by early February.