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How to identify Tax Scams

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The IRS isn’t your biggest enemy during tax season. It’s the criminals who pretend to be IRS reps and then con people out of their money. They contact potential victims chiefly through phone calls and text messages.

9DTypically, the message is threatening in tone and/or content, informing the target they’ll be arrested if they don’t immediately send the IRS owed money. The threat may also be deportation or a driver’s license suspension (that last one is really silly, but people actually do fall for these cons).

The money must be wire transferred or sent via a pre-paid card—and this is one of the tip-offs it’s a scam: Why wouldn’t the IRS accept a personal check like they normally do? The wire transfer or pre-paid card guarantees the crook will never be tracked.

Identifying tax scams is easy! It’s a scam if the scammy “IRS”:

  • Requests a credit card number over the phone or email
  • Requests a wire transfer or pre-paid card over the phone or email
  • The initial communication about owed money is NOT through snail mail.

The aforementioned three points should be enough for you to identify a scam, but to make identification even easier, here’s more:

  • There’s background noise to make you think it’s a busy call center.
  • The caller gives you his “badge number” to sound more official.
  • The caller identifies himself with a common name (i.e., Michael Harris).
  • The phone call coincides with an e-mail (to make things appear more official).
  • The caller hangs up when you say, “I actually work for the IRS myself.”

Scammers’ tricks that can fool you:

  • The caller ID appears it’s the IRS calling. Caller ID can be easily “spoofed”.
  • You get another call from supposedly the DMV or police department, and the caller ID shows this. (Now think about this for a moment: With all the really bad guys out there making trouble, don’t you think the police have better things to do than call people up about back taxes?)
  • The caller may know the last four digits of your Social Security number.

Don’t argue with the caller. Simply hang up (or if you want to have fun, tell them you yourself are with the IRS and listen to how fast they hang up). If you really do owe taxes, call the real IRS and work with an authentic employee to pay what you owe.

Robert Siciliano is an identity theft expert to BestIDTheftCompanys.com discussing identity theft prevention. Disclosures.

Protect Yourself from Tax Time Scams

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Tax season is now upon us, and more than ever, we are opting for the convenience of filing taxes online (81% of us did in 2012). While filing online may be faster and more convenient, there is also some risk that you need to be aware of. During 2012, the IRS discovered  $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.*

Hackers have developed sophisticated methods to gain access to your financial information, and they are targeting consumer and small to medium sized business owners. Consumers and small businesses are the low-hanging fruit—the path of least resistance—because they don’t usually have as much security in place as larger companies.

The number of daily targeted attacks specifically aimed at small and midsize businesses more than doubled in the first six months of 2012. One of the best ways to help protect yourself is to be aware of these tax time scams. Some of these are:

Phishing scams: Unsolicited emails that appear to be from the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS) asking for personal information or stating you are being audited, are not to be trusted. The IRS does not contact taxpayers by email or social media tools. You should report this by sending the email to phishing@irs.gov . You may also see phishing scams from online tax companies like the recent TurboTax scam.

Fake IRS agents: Beware of scammers posing as IRS agents. They contact you via phone or email, and are often prepared with a few personal details (most likely garnered from your trash or social media sites), which they use to convince you of their IRS affiliation. If you are suspicious, check the IRS phishing page at IRS.gov/phishing to determine if it is a legitimate IRS notice or letter.

Rogue tax preparers. Be careful who you use if you have someone prepare your tax return for you. Some of these return preparers have been known to skim off some of your refund or charge inflated fees for getting you a larger return.  Make sure you use a reputable service if you are not doing your own taxes.

Here’s some additional tips that you should follow to protect yourself when filing online:

Protect your data. This means that all sensitive documents, including anything that includes tax or investment records, credit, debit or bank account numbers, or a Social Security number, must be secured from the moment they arrive in your mailbox.

Shred non-essential paperwork. Check with your accountant to determine what you need and what you don’t. Use a cross-cut shredder to destroy unneeded documents.

Go paperless. Whenever possible, opt to receive electronic statements in your inbox. The less paper in your life, the better.

File early. The earlier you file, the more quickly you will thwart any criminal’s attempt to file on your behalf and collect your refund.

Use a clean PC. Make sure you are not using a computer that is infected or does not have any security software. You should also make sure that the computer’s operating system and browser are updated and that you use up-to-date, comprehensive security software like McAfee All Access that protects all your devices.

Robert Siciliano is an Online Security Expert to McAfee. He is the author of 99 Things You Wish You Knew Before Your Mobile was Hacked!  (Disclosures)

Small Business Tax Scams

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The Internal Revenue Service issued its annual “Dirty Dozen” ranking of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of that aren’t necessarily always perpetrated by an outsider trying to scam the business or individual, but sometimes these are inside jobs that put the company in hot water.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

“Free Money” from the IRS & Tax Scams Involving Social Security

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These tax fraud schemes are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

False/Inflated Income and Expenses

Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular tax scam. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions.  This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

False Form 1099 Tax Refund Claims

In this ongoing tax scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.

Frivolous Tax Arguments

Promoters of frivolous tax fraud schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

Abuse of Charitable Organizations and Tax Deductions

IRS examiners continue to uncover the intentional tax deduction abuse of 501(c)(3) organizations, including arrangements that improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or the income from donated property. The IRS is investigating tax fraud schemes that involve the donation of non-cash assets –– including situations in which several organizations claim the full value of the same non-cash contribution.

Disguised Corporate Ownership

Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes.

Robert Siciliano personal and small business security specialist toADT Small Business Security discussingADT Pulse on Fox News. Disclosures

Tax Related Identity Theft Scams Up 300%

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Cases of stolen tax returns have surged over the past five years, leaving many identity theft victims struggling to recoup their lost refunds.

Approximately 155 million tax forms are filed annually. This provides identity thieves with an opportunity to come out of the woodwork and steal from Americans who are just trying to pay their taxes correctly.

A recent Scripps Howard News Service investigation analyzed more than 1.4 million ID theft records from the U.S. Federal Trade Commission from 2005 through early 2010.  In it they found that fraud complaints about stolen tax return-related identity theft jumped from 11,010 complaints in 2005 to 33,774 in 2009.  That’s nearly 300 percent.

Thieves may steal victims’ refunds, trick them into disclosing Social Security or credit card numbers, or even pose as the IRS. Below is more information for those common and lesser-known tax scams to watch out for.

Employment Identity Theft Scams: If you ever receive documentation in the mail indicating earned income that you are not aware of, it may mean that someone else has used your Social Security number to gain employment.

Account Takeover Scams: If, when filing your tax return, you receive a letter from the IRS saying that you have already filed, it it likely that someone else has filed a fraudulent return on your behalf, in order to steal your refund.

Tax Preparer Scams: In an old scam that’s still in play, tax preparers tell clients they must pay back stimulus payments, and then pocket the money. Ads are also placed by scammers posing as accountants to get your returns. Make sure you do research and choose your tax preparer wisely.

Late Payment Scam: As people fall behind on their taxes, lists are created and are printed in the local paper as public record. Thieves can use these lists to call unassuming people and pose as collectors.

Internet Phishing Scams: The IRS doesn’t send emails. Phony IRS emails that try to lure taxpayers into giving out personal information are a common scam. The messages are generally intended to convince recipients to provide personal or financial information that enables the perpetrators to commit credit card or bank fraud, or other forms of identity theft. Unless you are actively engaged in dialogue with an IRS agent, do not respond to emails or phone calls supposedly coming from the IRS.

IRS Scams: If a scammer posing as an IRS agent ever contacts you, they may already have some of your personal information, which they can use to try to convince you that they are actually from the IRS. This data could come from public records or even your trash. The scammer will often put pressure on you to comply with their request, or even offer you a tax refund.

Here are some suggestions to protect yourself and make sure that you get your return:

1. Protect yourself by filing early. It seems crazy to think that someone would fraudulently file taxes in your name, but it’s being done. Once they find a few W2s or other tax-related documents, they can file in your name and claim your refund before you’ve even begun the process. File before they do.

2. Secure your mail with a locking mailbox. Mail is stolen every day, and tax forms tend to include Social Security numbers, making them especially valuable to a thief. Don’t send out your tax return by sticking it in your home mailbox. Instead, take it to the post office or use a big blue post office drop box.

3. Protect your PC. Whether or not you file online, securing your PCs is essential. Make sure you have updated antivirus software, a two-way firewall, that you run spyware removal software regularly, and that your wireless Internet connection is protected with a network key.

If you are ever a victim of a scam involving the IRS, you may be disappointed by the way it is handled by government agencies. They simply don’t allocate the resources to fix this problem proactively, nor are they adept at responding once it has occurred. The biggest issue is the thief’s privacy. Even if you think you know who is responsible, neither the IRS nor any other government agency will release that information. All you can do is follow the IRS’s instructions for resolving the issue. Be patient, as rectifying it may take many hours, days, or weeks. If you subscribe to an identity theft protection service, a fraud resolution agent may be able to help.

McAfee Identity Protection includes proactive identity surveillance to monitor subscribers’ credit and personal information, as well as live access to fraud resolution agents. For additional tips, visit CounterIdentityTheft.com.

Robert Siciliano is a McAfee consultant and identity theft expert. See him explain how a person becomes an identity theft victim on CounterIdentityTheft.com (Disclosures)

Beware Of 10 Tax-time Scams

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We are approaching tax time. Scammers are ramped up and looking for your money. Learn these tax season scam tips and watch your back.

1. Text messaging scams or smishing a.k.a Phexting. Like phishing but texting. Criminal hackers have access to technology that generates cell phone numbers and access to mass text messaging services. They send texts that install keyloggers or direct you to websites that steal your data.

2. Tax preparer scams. Reports of tax preparers who tell their clients they have to pay back their stimulus checks, then pocket the money.

3. Basic phone scams. Using the telephone for scams is back. Scammers call your home posing as local fire dept collecting your personal information for their records in case there is an emergency.

4. Caller ID spoof. New technologies that allow anyone any time to mask what shows on your caller ID and pose as an official, lottery or authority to get you to reveal data or write checks.

5. Late payment scam. As people fall behind on their utilities or taxes, lists are created and available either internally or as public record. These lists fall into the wrong hands and thieves call you to collect.

6. Affinity fraud. The Madoff scandal has inspired a new generation of cons to adopt the Ponzi once again.

7. Advanced fee fraud. Now more than ever, if it seems too good to be true, it is. Desperate times mean desperate people are making bad decisions and getting taken to the cleaners.

8. Work at home scams. Millions of people laid off, millions looking for a job. There isn’t a newspaper in the country that doesn’t have a work at home scam ad.

9. Foreign lottery scams. The promise of money is overseas, not here at home and criminals are using the phone, email and snail mail to find their victims.

10. Identity Theft. Identity thieves raised the bar as it has gone up 22%. Watch your credit reports and look for and shut down accounts opened in your name you have not authorized.

Robert Siciliano personal and home security specialist to Home Security Source discussing home security and identity theft on TBS Movie and a Makeover.