The first day of April often brings with it a raft of pranks, jokes, and other silliness. Unfortunately, scammers consider every day to be April Fool’s Day – and the joke’s on unwary consumers.
This year, we urge consumers to turn the tables on scam artists and get educated about new scams. Scammers frequently tailor their scam’s pitches to an approaching holiday or significant event. For example, every year around the December holidays, we see an increase in charity scams. Similarly, we expect an upswing in reports to NCL’s Fraud Center about scams related to Tax Day as we approach April 15.
Tax Day scams come in many forms, so consumers should be sure to be on the lookout for them. Some of the more common variants include:
- Phishing Scams – The victim receives an email, fax or phone call, purportedly from the Internal Revenue Service (IRS) or state taxation authority, asking for personal information necessary to process a refund. Consumers who fall victims lose their personal information, which the scammer can use to commit identity theft or drain a bank account (if a bank account number is provided to the scammer). The reality is that the IRS and state taxation authorities will never contact filers in this way to obtain additional information. Consumers should avoid giving any personal information out when they receive such calls and do not click on links in such emails, even if they have an IRS logo (phishers are experts at making “official-looking” emails). For more information on IRS phishing scams, visit the agency’s official site.
- Home-Based Business Tax Schemes – Promoters of home-based business opportunities (many of which are just masked pyramid schemes) sometimes claim that such businesses can be used to avoid paying taxes by listing most, if not all, personal expenses as tax-deductible business expenses. Consumers falling victim to such schemes could be liable for back-taxes owed, IRS penalties, and even imprisonment. Click here for more information.
- Abusive Return Preparers – Tax season is a stressful time for many consumers. Difficult-to-understand forms, complicated calculations, and the ever-looming April 15th deadline lead millions of consumers to use tax preparers, most of which are reputable businesses. Unfortunately, abusive return preparers can hit unsuspecting consumers with a double-whammy. First, these scammers often charge outrageous fees and skim profits off the top of consumers’ refunds. Second, such returns often incur the wrath of the IRS. Since the consumer is ultimately responsible for his or her own return, they could be liable for IRS penalties. Click here for tips from the IRS for choosing a reputable tax preparer, and always check out the business with your local Better Business Bureau.
- Refund Anticipation Loans – While not technically a scam, refund anticipation loans (known as RAL’s in industry jargon and often advertised as “rapid refund” loans) are used to get cash to consumers in as little as 24-48 hours after a return is filed. What is generally not well disclosed to consumers is that such “refunds” are actually loans from the tax preparer, often with hefty fees and even heftier interest rates (over 700% in some cases!). And, for consumers whose tax refunds are unexpectedly withheld from the government, they are still obligated to repay the loan, at the exorbitant interest rate. Such loans are often targeted at low-income and immigrant communities, preying on unfamiliarity with the tax system. For more information on RAL’s, click here.
Consumers who believe that they’ve been the victim of tax scams can file a complaint with NCL’s Fraud Center by using our online complaint form. These complaints are shared with more than 90 federal, state and local law enforcement and consumer protection agencies in the U.S. and Canada.