What Are the Latest Tax Scam Targets?

Tips on how to spot phony sites and business tax scam cons — and how to find a tax preparer pro: Internet Scambusters #377

It’s that time of year again — when we get serious with our tax returns and the con artists rethink their tax scam routines.

This issue highlights the growth in bogus tax-related sites and emails and explains how home-based businesses are being targeted for IRS scams.

Fraudulent, unqualified and other useless would-be tax preparers are also on the prowl. We have 7 tips on how to avoid them.

Time to get going…


What Are the Latest Tax Scam Targets?


With a record number of Americans expected to file their IRS returns online this year, authorities expect to see a corresponding rise in Internet- and email-based tax scam tricks.

There’s new concern too that the rise in the number of home-based businesses could spark a bout of phony tax schemes that fool people into making expense claims they’re not entitled to.

And for those who prefer a non-technical, offline approach, the IRS continues to warn taxpayers of the need for caution when selecting a tax preparer. We have 7 tips to help you make a wise decision.

But first, those online tax scams…

Bogus Websites and Emails

By one estimate, at least 5,000 phony websites, hosted in more than 50 countries, will be online this year, claiming to be part of or linked to the IRS.

Victims usually arrive there by clicking a link in an email, which, again, seems to come from the IRS or an associated group such as the Free File Alliance (a legitimate organization) or the IRS Antifraud Commission (a non-existent body).

Under the guise of the Free File Alliance, a real organization comprising tax software companies and the IRS, a bogus message directs users to file tax returns electronically via the site.

The crooks do actually file the form — but not before altering the bank account details, so they get the refunds!

In the case of the Antifraud Commission, the bogus message claims that someone has registered the recipient’s credit card with the Electronic Federal Tax Payment System (EFTPS) and that the card is being used to make payments.

Following a link in the email takes victims to a phony web page where they are asked to provide their card details, Social Security number and other personal information.

This identity theft / phishing ruse is a common approach in most of the online tax scams.

Other recent examples of IRS scams include messages that tell victims they have to complete an online updated version of their W-2 forms.

Action: The IRS never, but never, initiates correspondence with taxpayers by email and they never ask for your SSN or other financial details because they already have them on your form or on file.

If you’re filing directly, rather than through tax software, the only free file site is via irs.gov — and note that a tax site without that .gov extension is NOT the IRS.

And when it’s all done, any email that tells you there’s money waiting for you is an out and out tax refund scam, nothing less.

For more information on online tax scam tricks, check out the following Scambusters issue: Tax Scams: What You Really Need to Watch Out for.

The Home-based Business Tax Scam

The huge shift towards home-working, whether through “telecommuting” as part of a regular job, or by setting up and running a home-based business, provides tax scam artists with another route to get at your pocket.

In this case, the crooks promote schemes via both websites and email. Their message is usually that they can help you claim or write off large chunks of your personal and living costs as legitimate business expenses.

In some cases, these IRS scam tricksters sell kits that are supposed to point you towards these expense claims; in other cases, they simply suggest you inflate business expenses.

In yet other instances, tax preparers have been known to suggest clients simply invent a non-existent home business as a source for deduction.

Action: With the growth in this type of work, the IRS is casting a closer eye than ever on home business expenses. Their guidelines: expense claims must be “ordinary and necessary” in relation to legitimate business activity.

Tax software can often guide you through this but the bottom line is that if you’re not sure about what you can claim, contact your tax preparer, and if that’s not possible, the IRS. And if you’re not in business, don’t pretend you are!

Selecting Your Tax Preparer

Using a qualified, reputable tax preparer is often the least painful route to paying the least amount of taxes. On the other hand, using a bad one can cost you a lot of money and could even put in you in jail, since you are ultimately responsible for the information that goes on your tax form.

We covered this subject in the Scambusters issue above. You will also find more useful information in last year’s Scambusters special on the IRS “Dirty Dozen” tax scams and tax relief scams.

Meanwhile, here are 7 simple tips that will help you find and work successfully with a reputable tax preparer:

  1. Check if they’re “enrolled” tax preparers (which means they have taken an IRS exam) and/or qualified CPAs. Over the next three years, every tax preparer will have to be registered with the IRS, but not right now. So, find out just how qualified your preparer is.
  2. Check out their credentials too with state licensing bodies (a few states, such as California and Oregon, actually have specific regulations for tax preparers). And ask them for verifiable references.
  3. Establish who is actually going to do the work — the preparer or an assistant down the line? Unqualified preparers often miss key deductions.
  4. Ask if they would represent you in the event of an audit or other review. This may turn out to be important — and will also give you an idea about how reputable and confident they are in their own abilities.
  5. Get an upfront quotation on their fees. Usually they charge by the hour — and also find out how many hours they expect to spend. Don’t work with a preparer who offers to work for a percentage of your refund.
  6. Monitor how much detail they ask for. If they don’t want to see receipts or scrutinize income and expenditure, they’re not doing their job.
  7. Beware of scaremongers — preparers who try to persuade you it’s unsafe to take legitimate deductions — and very aggressive preparers. You likely want a tax preparer who will take all the legitimate deductions available, but no more.

And remember, as we said above, you are ultimately responsible for what goes on your tax form. So check every line before you sign off on it.

That’s a wrap. Good luck with your 2009 tax preparations, follow our simple guidance, check out the irs.gov site — and stay tax scam free!