Bruce Helmer and Peg Webb
Tax season is a busy time not only for taxpayers and tax preparers, but also for fraudsters. Cybercriminals are getting more sophisticated, targeting wealthy individuals and anyone who might let their guard down. Protecting your personal and financial information is more critical than ever.
In 2023, the FBI’s Internet Crime Complaint Center (IC3) reported a staggering 880,418 complaints of cybercrime, with losses exceeding $12.5 billion. While not all these crimes were related to taxes, they highlight the growing scale of online fraud.
Investment fraud alone rose to $4.5 billion, up 38% from the previous year. Alarmingly, scammers are using new tools like artificial intelligence (AI) to create more convincing schemes, targeting taxpayers with large tax bills by offering fraudulent “relief” in exchange for sensitive information.
The most common tax scams
Fraudsters are constantly evolving their tactics, but a few scams remain perennial threats:
1. Phishing emails and calls: Phishing remains one of the most widespread tactics. Cybercriminals pose as IRS officials to trick people into sharing personal information. They might claim you owe back taxes or that you’re eligible for a significant refund. Be aware of the following warning signs:
• The IRS generally does not contact taxpayers by phone or email without first sending an official letter through regular U.S. mail delivered by the U.S. Postal Service. They will email you only with your permission. Phone calls are sometimes made to discuss your case, verify information or set up a meeting.
• Scammers pressure you to “pay now or else” with threats of arrest or deportation. The IRS neither engages in these pressure tactics nor threatens to call law enforcement or immigration officials.
• Emails or texts with links to fake websites often contain spelling errors or unusual URLs — but also contain dangerous links that can compromise or damage your computer and/or steal sensitive personal information.
Remember: If it sounds too good to be true, it probably is.
2. Unqualified or fraudulent tax preparers: While most tax professionals are legitimate, an increasing number of unqualified preparers seek to misuse client information. To protect yourself:
• Make sure your tax preparer has a valid Preparer Tax Identification Number (PTIN).
• Look for additional certifications such as Certified Public Accountant (CPA) or Enrolled Agent (EA).
• Avoid preparers who promise large refunds without thoroughly reviewing your financial situation.
• Never sign a blank or incomplete return.
• Ask about your preparer’s data security measures to safeguard your personal information.
3. Tax identity theft: In tax identity theft, criminals use stolen personal information to file fraudulent returns and claim refunds in your name. Common red flags include the following:
• Receiving unexpected tax documents or IRS notices about unfiled returns.
• Spotting emails or texts with misspelled or suspicious website links.
• Discovering unauthorized tax refunds in your name.
• Attempting to reach you directly through social media. Remember, although the IRS maintains informational social media sites, it will not contact you or take payment on those sites.
Scammers often create convincing fake websites to steal sensitive information, so double-check that you’re on the official IRS.gov site before entering any personal details.
4. Emerging AI Threats: The rise of AI has made tax fraud more sophisticated. Criminals use AI to create deepfake identities and manipulate data, making scams harder to detect.
However, AI also works in taxpayers’ favor. The IRS is using AI tools to uncover hidden assets, tax evasion and fraud schemes more efficiently.
Steps to protect yourself
The good news is there are four practical steps you can take to minimize your risk of falling victim to tax scams:
• 1. Safeguard your personal information: Store sensitive documents securely and only share personal information with trusted individuals or institutions. Another best practice is to regularly monitor your financial accounts and credit reports for unauthorized activity.
• 2. Recognize and report scams: Be cautious of unsolicited communication (by phone, text or email in particular) requesting your personal information. Report suspicious activity to the IRS and the FBI’s IC3. If you’re a victim of identity theft, notify your financial adviser, bank and credit card companies immediately.
• 3. Use IRS Resources: The IRS offers tools to help you stay safe, including:
Identity Protection PIN (IP PIN): This six-digit number adds an extra layer of security to your tax filings.
Tax Scam Updates: Visit the IRS website for the latest information on known scams and prevention tips.
• 4. Follow FTC guidance: The Federal Trade Commission (FTC) provides comprehensive resources on tax identity theft. Staying informed and using these tools can help protect your wealth from cybercriminals.
The bottom line
Tax season can be stressful enough without the added threat of scams. By staying vigilant, verifying who you’re working with, and using the resources available, you can protect yourself and your financial well-being.
When in doubt, consult trusted professionals or contact the IRS directly. It’s better to double-check than to fall victim to a scam that could have lasting consequences.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on WCCO 830 AM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com. Securities offered through LPL Financial, member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.
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