Tax Fraud Scams: How to Spot and Report Them

Tax fraud scams are deceptive practices used by criminals to steal money and personal information from taxpayers. These schemes are constantly evolving and can affect anyone. They often exploit taxpayers’ anxieties surrounding tax obligations and filing procedures.

Common Tax Fraud Schemes

Phishing, Vishing, and SMiShing

A prevalent category of tax scams involves fraudulent communications designed to trick individuals into divulging sensitive data. These methods include phishing (deceptive emails), vishing (fraudulent phone calls), and SMiShing (text messages). The messages often create a sense of urgency about fake tax bills or unexpected refunds to steal Social Security numbers and banking details.

These contacts are engineered to appear legitimate, mimicking official IRS branding. A phishing email might link to a fake IRS website to capture login credentials, while a vishing call may feature a scammer posing as an IRS agent who aggressively demands immediate payment to avoid arrest.

Ghost Tax Preparers

“Ghost tax preparers” are individuals who prepare tax returns for a fee but refuse to sign the return or include their Preparer Tax Identification Number (PTIN) as required by law. They often attract clients by promising unusually large refunds, which they achieve by inventing deductions or claiming false credits without the taxpayer’s knowledge.

The ghost preparer may direct the refund to their own bank account, take their inflated fee, and then forward the remaining smaller portion to the taxpayer. Because the preparer does not sign the return, they can disappear after the transaction, leaving the taxpayer responsible for any resulting penalties or audits.

Tax-Related Identity Theft

Tax-related identity theft occurs when a criminal uses a stolen Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN) to file a fraudulent tax return. This often happens early in the tax filing season before the legitimate taxpayer files. The scammer submits a return with fabricated income information to generate a substantial refund, which is then directed to an account they control.

The victim might receive a notice from the IRS about a tax return they did not file or income from an employer they have never worked for. Resolving these cases requires the victim to prove their identity.

Offer in Compromise Mills

Fraudulent companies known as “Offer in Compromise (OIC) mills” market services to taxpayers with outstanding tax debts. These companies often make misleading claims, promising they can settle a person’s tax liability with the IRS for “pennies on the dollar.” They exploit the legitimate IRS OIC program, which allows certain taxpayers experiencing financial hardship to resolve their tax debt for a lower amount.

These mills charge excessive upfront fees, sometimes thousands of dollars, for services even though many of their clients do not meet the strict eligibility requirements for an OIC. The taxpayer is left with their original tax debt plus the fees paid to the fraudulent company.

Identifying Red Flags in Communications

The Internal Revenue Service has specific protocols for communicating with taxpayers, and any deviation from these methods should be treated with suspicion. A primary indicator of a scam is that the IRS does not initiate contact via email, text message, or social media to request personal or financial information.

Another clear sign of a scam involves demands for immediate payment using specific, untraceable methods. The IRS will never call to demand immediate payment with a prepaid debit card, gift card, or wire transfer. Fraudulent callers often use high-pressure tactics, threatening arrest or deportation, but the IRS provides taxpayers with the right to question or appeal the amount they owe.

Legitimate IRS contact begins with a letter sent through the U.S. Postal Service. A genuine IRS notice will include a notice or letter number and will clearly explain the reason for the contact and how to respond.

Information to Gather Before Reporting

If you encounter a suspected tax scam, gathering specific information can help enforcement agencies investigate. For phone scams, record the incoming phone number from the caller ID and any callback number the scammer provides. You should also write down the name the caller used, a summary of the message, and the date and time of the call.

For phishing emails, it is important not to click on any links or open attachments. Forward the entire email as an attachment to the authorities, as the full email headers contain technical details useful for investigators. If a scam involves a fraudulent website, record its full URL.

For scams involving dishonest tax preparers, collect the preparer’s name, address, and phone number.

How to Report Suspected Tax Scams

Different types of scams should be reported to specific agencies to ensure the information reaches the right investigators. If you receive a suspicious email or discover a fraudulent website impersonating the IRS, forward the unsolicited email as an attachment to [email protected]. Do not forward screenshots, as this removes valuable data.

Phone scams or any instance where someone impersonates an IRS agent should be reported to the Treasury Inspector General for Tax Administration (TIGTA). You can file a report through their online portal or by calling 1-800-366-4484. It is also recommended to report the incident to the Federal Trade Commission (FTC) at FTC.gov.

To report an abusive or fraudulent tax return preparer, use IRS Form 14157, Complaint: Tax Return Preparer. This form allows you to provide details about misconduct and can be mailed or faxed to the IRS.

Actions for Tax Identity Theft Victims

If you are a victim of tax-related identity theft, specific steps are needed to resolve the issue, as a fraudulent return has likely been filed using your information. Your first indication may be an official IRS notice, such as a 5071C, 4883C, or 5747C, or your own e-filed return may be rejected. Respond to the specific instructions in any notice you receive.

A primary step for victims is to complete IRS Form 14039, Identity Theft Affidavit. If you discover the theft because your e-filed return was rejected, you should attach the form to your paper-filed tax return. The form can also be submitted separately online, by mail, or by fax and requires a copy of a government-issued ID.

To protect against future tax identity theft, you can voluntarily obtain an Identity Protection PIN (IP PIN). An IP PIN is a six-digit number that adds an extra layer of security when you file. You can opt into the program through the IRS website, but this decision is permanent. The IRS will issue you a new IP PIN each year for all future federal tax returns.