12 Scams to Watch Out for this Tax Season

By: Robert Bryson

Tis the season … to file your taxes! No, this isn’t an article about how and why you can avoid paying taxes. Instead, it is an article about the icing on the cake, fraud schemes that victimize thousands of people every year. Below I will go over the 12 most common schemes of 2017 as identified by the Internal Revenue Service.


Phishing refers to fake emails that trick people into giving up passwords and personal information. The IRS will never send you an email about your tax return, a refund, or a tax bill. Never, ever click on a phishing email or website claiming to be on behalf of the IRS.

Phone Scams

Similar to phishing emails, phone scams are calls from people impersonating an IRS agent. The caller follows a similar pattern (1) threatening the taxpayer (2) then offering a way to avoid punishment by rendering payment immediately. First, the IRS will never call you without prompt. If you do receive a call, it is after you have been contacted by IRS letters, you’ve spoken with the IRS, and were assigned an agent. Second, the IRS will never ask you to satisfy your tax debt with (a) gift cards (b) money orders or (c) account transfers.

Return Preparer Fraud

Return preparers are people who help you prepare and file your taxes – around tax season you probably see dozens of them popping up in temporary offices. While most tax preparers are honest and provide quality service, there are a few that set-up shop every tax season to perpetrate a variety of crimes including identify theft, tax refund fraud, and more.  

Fake Charities

After every major tragedy, charities solicit donations to bring aid to the affected areas (think Red Cross, UNICEF, and the Salvation Army). Unfortunately, fake charities are also set-up (usually with a name substantially similar to an established charity) to induce donations. You can check if a charity is registered with the IRS here.

Inflated Refund Claims

A common scheme (perpetrated by return preparers) involves manipulating your tax return to maximize a refund. Be suspicious of anyone who promises a big refund without (1) looking at your records (2) asks you to sign a blank tax return (3) or charges a fee based on a percentage of the refund [which is also illegal].

Excessive Claims for Business Credits

Similar to refund fraud, some unscrupulous tax preparers will claim a bevy of credits which your business is not entitled to claim. Frequent targets include the research credit and fuel tax credit. The research credit requires your business to participate in substantial qualified research activities or have other qualified research expenses. The fuel tax credit is limited to off-highway business uses such as farming.

Falsely Padding Deductions on Returns

Another scheme that is closely related to refund fraud, tax prepares will inflate deductions on tax returns to reduce taxable income and increase your refund. Improperly claiming deductions or credits will likely result in the IRS examining your return and requesting you substantiate your claims – if you cannot – you will be required to reimburse the Treasury which will likely assess penalties and interest against you.

Falsifying Income to Claim Credits

Another common scheme involves inflating income. Yes, certain credits require you to earn more money to maximize the refund (such as the Child Tax Credit and Earned Income Tax Credit). Again, if your return is inaccurate, you could be subject to penalties, interest, and pay back taxes.

Abusive Tax Shelters

Tax shelters are, in general, not allowed. A tax shelter is an entity that someone peddles as a vehicle to hide your money. The IRS is committed to combating these vehicles and you will have to pay back taxes, as well as penalties and interest.

Frivolous Tax Arguments

Frivolous tax arguments refers to outlandish claims, like claiming you’re a sovereign citizen, which are routinely denied by the IRS and the courts. Don’t listen to anyone that peddles a “game-changing” argument to avoid paying taxes. While you are allowed to contest your tax liability, if you file a frivolous tax return you could be subject to a $5,000 penalty.

Offshore Tax Avoidance

You probably noticed a bunch of high-profile off-shore tax schemes getting busted from Switzerland to Panama. That is because the Treasury Department is cracking down on U.S. taxpayers trying to hide their money overseas. You are required to report foreign accounts and pay taxes on those accounts. The IRS offers the Offshore Voluntary Disclosure Program to allow taxpayers to report their foreign accounts and catch up on their tax obligations.


Identity Theft

Hopefully you were paying attention to the Equifax data breach. If you haven’t, here is a quick summary: Equifax is one of the “Big Three” credit reporting agencies meaning that it knows everything about everyone’s financials. In 2017, Equifax suffered a major (and completely preventable) data breach that resulted in 143 million Americans having their sensitive information released including:

  • Names;
  • Date of birth;
  • Past addresses;
  • Social security numbers;
  • Accounts; and more.

The 2018 filing season is the first tax season since the data breach. With the information that hackers made off with, they could file fraudulent tax returns on your behalf and collect refunds. It is critical that you file your tax return as soon as possible (the sooner you file a tax return, the harder it is for someone to file on your behalf).



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