On the Naughty List: Holiday Tax Scams to Look Out For

The holidays can often bring folks together, but maybe that’s not the best thing for data privacy. It turns out that scammers can use your family’s financial data to get at yours — with you being none the wiser.

Kiplinger sat down with Mark Baran, managing director of the National Tax Office at CBIZ, a national professional services advisory firm. Baran had this to say about scammers: “They’re mining data in different ways. They’re being a lot more sophisticated…[and] they’re getting better.”

It seems that the IRS agrees. From charitable contribution scams to impersonating delivery services, the tax agency is warning about scams for you to avoid this busy holiday season. Read on for information on how to protect yourself, and your family, from con artists and thieves.

IRS tax scams

The IRS is particularly concerned about the following scams:

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Delivery services. Scammers pretend to be businesses trying to deliver you a package and send you a text or email asking to reschedule the delivery. In reality, they never had access to your package.

Tax refunds, bills, or downloadables. Thieves will send an email with good news, like a tax refund, or bad news, like an unexpected tax bill. The emails include links to either 1) steal your personal information (bank account, SSN, etc.) or 2) download malware on your device.

Year-round scams. Various scams happening throughout the year, including:

• Phishing and smishing tax scams, where emails or texts come to a recipient to trick you into clicking something suspicious or downloading malware.
• Spear phishing, which is phishing targeted at a specific individual, whereby the scammer will pretend to be your tax professional or other trusted person to lure you into sending them financial information.
• Clone phishing, where an email from a legitimate person (like your colleague) is cloned, meaning everything looks the same: subject line, language, logo, etc. The only differences are that 1) the sender’s email address is incorrect, and 2) any legitimate link(s) in the email is swapped for a malicious attachment.
• Whaling is spear phishing but targeted at leaders of an organization with access to lots of information, like CEOs, CFOs, and other executives.

Even if the amount lost due to fraud is small, that isn’t necessarily the issue. As Baran points out, “The problem is that someone has access to your personal data. And so we need to jump on it really quickly.”

One way to do this is to complete Form 14039 online or a paper Form 14039, Identity Theft Affidavit, to submit to the IRS. Then work closely with the agency and your tax preparer to move through the remaining steps.

Form 14039 will tell the IRS that a tax-related identity theft has occurred. Still, you may want to inform other organizations depending on the crime. For instance, if your bank account has been compromised you’ll want to report it to your bank, potentially freeze your credit, etc.

Next, we’ll walk through a particularly costly scam, which is one where high earners are exploited.

Charitable contribution scams of high income earners

Fraudsters target the wealthy and encourage them to create limited liability companies (LLCs), put cash or other assets into them, and then donate most of the nonvoting rights to a charity.

The thieves may or may not control that charity. But they do charge a fee.

The fraudsters will promise that you can still maintain control of the voting rights of your assets and continue to use your invested capital for personal use. Plus, they’ll claim you can take a charitable deduction on the “donated” assets.

And if that sounds too good to be true, you’re correct. Here are other warning signs to look out for:

• An “exit strategy” to buy back your donations
• Promises of growing your wealth in a “tax-free environment” while claiming a charitable deduction
• The charity, as the majority owner of the LLC, has no control over the LLC or the assets
• Using the LLC funds to purchase life insurance policies benefiting your heirs or another related party after the “donation”

So how would you fall for this tax scheme? Baran explains, “There’re opportunities that look like they should come up…there’s year-end planning that occurs, and charitable giving is part of that.”

But these ‘opportunities’ come at a price: you would have to face the consequences, including potential IRS penalties, fines, and even imprisonment — not the promoter.

Baran suggests that typically, “An individual should contact their tax advisor to find out if something is legitimate.”

Holiday scams: Safety tips

Here are some tips to help protect yourself from scams as we head into the holiday season:

• Ask for the proper documentation for any donations you made to a charity. The IRS requires written acknowledgment from the charity for contributions of $250 or more, and appraisals of donated property for $5,000 or more
• If you shop only do so on sites that begin with the letters “https:”, where the “s” stands for secure
• Don’t shop unsecured public Wi-Fi like hair salons, malls, or restaurants
• Keep your security software up to date
• Use multi-factor authentication when possible (i.e. a text or phone call when logging into a website)

Remember: as we head into the holiday season, keep a close eye on online purchases and spending habits of family and friends, especially those with whom you share an account or loyalty card.

Baran advises, “When people are busy, it’s hard for them to realize, ‘Stop a second: this doesn’t smell right.’ Use your intuition. Keep informed of what’s happening out there. And try to guard against it.”

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