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Posted on May 2, 2013

Part 1 – Tax Scams: Protecting Yourself Against The Dirty Dozen

Written by Avner Polatsek | @AvnerPolatsek

tax scams

As always, around tax time, the IRS posts their “Dirty Dozen”, which is a list of scams they have become aware of for 2013. The list lets us know what cons we should all be watching out for and is posted around this season because there is an increase in scams around tax time. While we’re all thinking about our finances as we do our taxes, it’s a good opportunity to be reminded that we need to protect ourselves and our information.

Whether you’re an American citizen living in Canada or not, you could be the target of scams and should know how to defend yourself. The Dirty Dozen is quite intensive, so we’ve simplified each item and included ways to protect yourself against tax time scams.

1. Identity Theft

Many people have heard of identity theft, but don’t always know what the scam entails. Most commonly, criminals will steal your personal information (often your Social Security Number) and then commit crimes usually relating to fraud. An example of identity theft would be filing a fraudulent tax return with stolen information in order to collect a refund.

Protect yourself against identity theft by guarding your personal information and reporting any stolen cards immediately.

2. Phishing

If you’ve ever received an email directing you to another website and asking you to provide personal information, you may have experienced a phishing attempt. Phishing scams usually disguise themselves as legitimate businesses or organizations, giving you a false trust that they actually need this information.

Protect yourself against phishing by never providing your personal information to someone who has requested it electronically. Most businesses will never ask for your information out of the blue and if they do, call and confirm that it is necessary before doing anything else.

3. Return Preparer Fraud

A legitimate tax professional should always sign the tax return they prepare for you and include their Preparer Tax Identification Number (PTIN). One of the scams, this year, is people pretending to be qualified to prepare taxes and then sending false tax returns.

Protect yourself against return preparer fraud by only hiring tax professionals with a PTIN and with a good reputation in your community. Remember, you’re responsible for the information on your return, regardless of who has filed for you.

4. Hiding Income Offshore

The fact that the IRS is posting this as a part of their Dirty Dozen shows just how serious they are about people neglecting to disclose information about accounts outside of the US. Obviously, they are talking about large sums of money kept in foreign accounts, but if you are a US citizen living in Canada and using Canadian bank accounts, you still need to file certain forms to disclose this information. Read our full post about that here.

Protect yourself from paying penalties because you failed to disclose your foreign accounts by filing correct tax forms. Contact us if you would like help!

5. “Free Money” from the IRS

This scam advertises, often in print, to help you file your taxes and receive all kinds of returns you didn’t even know you were entitled to. After you’ve paid for the help and filed your return, you find out that you weren’t eligible for these returns. Common “Free Money” scams center around the American Opportunity Tax Credit or Social Security refunds.

Protect yourself from “Free Money” scams by researching the information you receive about tax returns. Lots of these scams are only effective if you don’t do your own research.

6. Impersonation of Charitable Organizations

Unfortunately, scam artists use natural disasters to take advantage of both victims of the disaster and those who wish to help. Usually, the scammer will contact a disaster victim and say that the IRS wants to help them file their taxes and receive returns. They will then use the information they receive for identity theft. Alternatively, fake charities also pop up, claiming to work in disaster relief and asking for your financial help.

Protect yourself from impersonation of charitable organizations by never releasing your personal information over the phone and by only giving to recognized charities. Use the Select Check to find information about charities before you participate with, or give to, them.

Part 2 coming soon. Tax Scams: Protecting Yourself Against The Dirty Dozen.

Information for this post comes from the IRS website.