As if (frantically) completing one’s taxes isn’t bad enough, tax season can also bring schemes and scams to unsuspecting consumers. Every year the IRS issues the “Dirty Dozen”, or the 12 tax-related schemes that consumers should know about. (Remember: Although tax-related fraud is higher during tax season, the annual dozen includes various schemes that you should be aware of throughout the year.)
Also included on the list – common infractions by legitimate filers. Here are the 2017 Dirty Dozen to help you stay safe and honest this year.
Phishing: Carefully scrutinize any emails you receive that claim to be from the IRS, especially if the email asks you to enter your information. Here’s the golden rule of communicating with the IRS: They will never make initial contact with you via email or phone call about a bill or refund. Often, urgent requests from the “IRS” are often fraudsters’ method of getting you to provide personal information. If you’re unsure about a piece of correspondence, then check out the IRS’s Learn How to Recognize Phishing Scams article.
Phone Scams: Again, consider that the IRS won’t call you to let you know that you owe money. So if you do get a phone call from an “agent” demanding urgent payment for back-taxes, hang up and contact the IRS via the information provided on their website.
Identity Theft: The IRS does have precautions in place to try to spot fraudulent filings from scammers trying to get your refund, but some illegitimate filings are bound to get through. Filing early helps reduce the chances that a fraudster will get your taxes in before you do. Remember to take advantage of the one-free-credit-report a year requirement by the credit bureaus and review your reports for inaccuracy – especially if you know your information’s been compromised in the past.
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Return Preparer Fraud: Do your research before hiring an accountant or tax preparer. The vast majority of tax professionals provide honest and high-quality service. However, there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, steal your information and other scams. Make sure your hired-help is reputable.
Fake Charities: Be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Be especially wary of charities with names similar to familiar or nationally known organizations. CharityNavigator.org can help – just plug in the organization’s detail and they’ll let you know what info’s out there about the group.
Inflated Refund Claims: If it sounds too good to be true….Watch out for anyone promising inflated refunds. Be wary of anyone who asks you to sign a blank return, promises a big refund before looking at your records or charges you a percentage of your refund for their work.
Excessive Claims for Business Credits: Avoid improperly claiming the fuel tax credit, a tax benefit generally not available to most taxpayers. The credit is usually limited to off-highway business use, including use in farming. Taxpayers should also avoid misuse of the research credit. Improper claims often involve failures to participate in or substantiate qualified research activities and/or satisfy the requirements related to qualified research expenses.
Falsely Padding Deductions on Returns: Remember the old mantra, Honesty is always the best possibly. Avoid the temptation to falsely inflate deductions or expenses on your returns to pay less than what you owe or to try to receive a bigger refund. Even worse? Improperly claiming credits such as the Earned Income Tax Credit or Child Tax Credit.
Falsifying Income to Claim Credits: It may seem obvious, but it’s on the list for a reason. Don’t invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. Taxpayers are sometimes talked into doing this by con artists, but remember, you are legally responsible for what’s on your forms. This scam can lead to taxpayers facing large bills to pay back taxes, interest and penalties. In some cases, you could even face criminal prosecution.
Abusive Tax Shelters: Don’t use abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. Be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, seek an independent opinion regarding complex products that you may be offered to avoid paying taxes.
Frivolous Tax Arguments: These typically sound like, “I shouldn’t have to pay taxes because….” Don’t use frivolous tax arguments to avoid paying tax. Fraudsters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims even though they have been repeatedly thrown out of court. You do have the right to contest your tax liabilities in court, but be leery of anyone promising to get you out of paying taxes, as the exceptions for not paying taxes are almost non-existent. It’s far more likely that your new tax helper is just a con artist looking for a quick payout. And remember, the penalty for filing a frivolous tax return is $5,000.
Want to know more? Check out the IRS’s What’s Hot page for the latest and most up-to-date information on all things tax.
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