Top Tax Scams Every Business Owner Needs To Watch Out For In 2024

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Hodgson Consulting & Solutions

Tax season is approaching, bringing tax scams with it. Each year, individuals and business owners fall prey to scams, leading to financial losses and the exposure of personal data. According to the Better Business Bureau, taxpayers lost $5.7 billion due to tax scams and fraud in 2022 alone. In this article, you will learn about the top scams to watch out for to reduce your chances of becoming these scammers’ next victim.

To avoid falling for Internal Revenue Service scams, understanding how the Internal Revenue Service contacts taxpayers is crucial. According to the IRS website, the IRS does not initiate communication with taxpayers through e-mail, text messages, or social media platforms to request personal or financial information. The IRS’s primary mode of communication is through physical mail; however, if they’re unable to reach you via mail, they may initiate a phone call. The IRS will not ask for personal or financial details over the phone and will never threaten you or demand payment. If you’re second-guessing anything you receive, you can check out this article to help you figure out if it’s really the IRS contacting you.

The Refund Scam

The Internal Revenue Service has issued a warning to taxpayers about a scam that tricks individuals into believing they are entitled to a refund. This is the most common scam that occurs every year.

In this scheme, recipients receive an official notice, typically a letter, stating that they have an “unclaimed refund” available. One variation involves a cardboard envelope resembling a certified delivery service with the IRS logo.

Like many scams, the deceptive letter includes false contact information and a phone number that is in no way affiliated with the IRS. What distinguishes this scheme is its request for sensitive personal information from taxpayers, such as detailed images of driver’s licenses. Identity thieves exploit this data to access tax refunds and private financial information. Remain alert and cautious of such deceptive communications. Trust your instincts; if it seems suspicious, it probably is.

Identity Theft

If cybercriminals are able to access your personal information, they may file a fake tax return on your behalf and potentially collect a refund payment. The IRS recently reported over 1 million flagged tax returns last year due to possible identity theft. 

One way to prevent tax ID theft is to apply for an Identity Protection PIN from the IRS before filing your return. It’s also good to file early before criminals have a chance, and if you receive a notice about an alleged “duplicate tax return” or a notice saying that additional taxes are owed, contact the IRS as soon as possible.

The ERC Scam

The Employee Retention Credit (ERC), sometimes called the Employee Retention Tax Credit, or ERTC, is a refundable tax credit against certain employment taxes. The IRS and tax professionals continue to see aggressive broadcast advertising, direct mail solicitations, and online promotions involving the ERC. While the credit is real, aggressive promoters are misrepresenting and exaggerating who can qualify for the credit.

This has led the IRS to issue numerous warnings about ERC schemes from third-party promoters charging high up-front fees or a fee based on the refund amount. These promoters may fail to inform taxpayers that they must reduce wage deductions claimed on the business’s federal income tax return by the amount of the credit.

Businesses, tax-exempt organizations, and others thinking about applying for the ERC should thoroughly review the official requirements for this credit before claiming it.

The “Impact Payment” Scam

As you prepare to gather the required documents for filing your 2023 return, watch out for a new online scam circulating. This scheme involves an e-mail displaying the IRS logo and addressing the “third round of economic impact payments,” deeming it an “important matter concerning your recent tax return filing.”

The e-mail claims that certain inconsistencies or missing information have been identified and promises recipients a $976 refund upon submitting requested documents. Notably, there’s a button labeled “complete my information,” but IRS Media Relations Specialist Robert Marvin urges you not to click it.

The “Additional Information Needed” Scam

If you receive an e-mail from the IRS requesting that you submit a tax form, proceed with caution. While there are legitimate forms that taxpayers may be required to complete (such as the W-9 for freelancers and W-4 forms for employees), these are typically directed to companies and do not go directly to the taxpayer from the IRS.

To avoid potential scams, it is recommended to ignore such messages and promptly report the fraud to the IRS. Remember, the IRS does not initiate contact via e-mail, and any solicitation for forms through this is indicative of fraudulent activity.

Another Tax Agency Scam

Scammers might pose as real or fake tax agencies when making phone calls. They may pretend to be the Taxpayer Advocate Service or the non-existent Bureau of Tax Enforcement. 

While the Taxpayer Advocate Service is a legitimate entity; it doesn’t make unsolicited calls to taxpayers. On the other hand, the Bureau of Tax Enforcement is not a genuine organization.

Exercise caution and skepticism toward unsolicited calls alleging to be from government agencies. If possible, get a reference number, end the call, and initiate a return call using an officially verified phone number. This practice helps protect against potential scams.

Be Smart and Protect Yourself

As tax season approaches, the incidence of scams surges. Staying vigilant helps you identify fraudulent scams posing as the IRS and safeguard your financial resources and personal information.

To boost protection and reduce the risk of identity theft, it is recommended to file your taxes early. Early filing reduces the window for scammers to impersonate you. When hiring a tax preparer, conduct thorough vetting, and be cautious of those promising substantial refunds without prior access to your information. For an extra layer of security and peace of mind, look into a fraud protection service.

Cybercriminals never take a break. Tax scams are only one way they’re trying to steal your information and money. It’s important to have a full cyber security system in place to make sure your organization is protected at every possible entry point. We recommend getting a FREE third-party security assessment. Our team of experts will examine your entire network for vulnerabilities and help you map out a plan to fix them. In all the years we’ve been doing this, we’ve always found something.

To schedule your no-obligation assessment for your peace of mind, click here.

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