Wealth Column: Avoiding tax scams during tax season

Here are a five ways to ward off fraudsters who attempt to steal your tax identity.

Bruce Helmer and Peg Webb sit next to each other at a table.
Bruce Helmer and Peg Webb, financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on KLKS 100.1 FM on Sunday mornings.

Taxes are one of life’s two certainties.

But we might add a third one: ploys during tax season that attempt to steal your identity — and possibly your refund.

Between January and April, authorities expect a rash of tax-related phone and email phishing scams and identity-theft cases. There are two common varieties of tax fraud, one that involves Social Security numbers that purportedly have some sort of suspicious activity attached to them, and another that threatens people with a tax bill from a fictitious government agency.

The first involves scammers who use email or a phone call to threaten to cancel or suspend the victim’s Social Security numbers due to overdue taxes. Fraudsters pose as IRS agents, who threaten their targets with an arrest and legal prosecution unless they pay the fine “immediately.” Remember, the IRS doesn’t engage taxpayers with email, phone calls, text messages or social media to request personal or financial information.

The second scheme involves mailing an official-looking letter that threatens an IRS lien or tax levy owed to some not-existent government agency such as the “Bureau of Tax Enforcement.” The letter tries to scare the recipient into paying the fine using a specific payment method such as a prepaid debit card, gift card or wire transfer. (Note: The IRS never uses these forms of payment.)


What to Look For in Tax Identity Scams

Tax identity theft is especially difficult to detect before the fraud occurs. But here are common telltale signs:

  • If your federal income tax return has already been filed by someone else using your Personal Identifiable Information, they may try to shortstop your refund. When you file your return, the IRS will send you a notice letter indicating that your refund has already been issued.  
  • Sometimes, thieves who have stolen your Social Security number will use it to obtain employment and not pay taxes. Their employers will report those earnings to the IRS. Once the IRS catches the discrepancy, it will send you an action letter stating that you’ve failed to declare all of your income. 
  • Over the past two years, there’s been an outbreak of COVID-19 scams related to economic impact payments, whereby identity thieves use calls, texts and email phishing attempts to ask you to verify or provide your financial information so you can get a government payment or refund faster.

Victims of tax identity fraud usually only find out that they’ve been scammed when the IRS refuses to process the legitimate return because the indicated taxpayers have already filed returns and refund checks have been issued.

Five Recommendations for Avoiding Tax Identity Theft

Here are five steps you can take to avoid being victimized by tax identity fraud:

  1. Secure your sensitive information. Never send personally sensitive information via email or text. The IRS will never contact you via these methods, so if you receive email or text requests that look like they come from the IRS, ignore them. If you file online, always use a secure connection. 
  2. File early. If you have the ability to file your return early, do so. The IRS processes returns mostly on a “first come, first served” basis, and filing early takes the advantage of time delays away from criminals. 
  3. Protect your Social Security number. Be very suspicious if (1) you receive a letter from the IRS about a tax return you did not file; (2) are not permitted to e-file your tax return because of a duplicate Social Security number; (3) receive a notification that an online IRS account has been created in your name when you never took any action; or (4) you get a notice from the IRS claiming that you received wages from an unknown employer. 
  4. Check your credit report regularly, at least once a year. You can download your credit report for free once a year at during tax season and place a credit freeze if necessary.
  5. Sign up for an Identity Protection PIN. Last year, the IRS made its Identity Protection PIN program available for all taxpayers. Previously only available to victims of identity theft or taxpayers in certain states, the Idenity Protection PIN is a six-digit code known only to the taxpayer and to the IRS. It helps prevent fraudsters from filing phony returns using your Personal Identifiable Information.

If you or your business has been victimized by tax-related identity theft, contact the police or FBI, and visit the website to learn about further actions you can take.

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 News Radio 830 WCCO on Sunday mornings. Email Bruce and Peg at Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment adviser. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL.

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