Illustration of different tax scams that target consumers

The American founding father Benjamin Franklin once said, “in this world nothing can be said to be certain, except death and taxes.” But in this day and age I’d argue there’s a third certainty: tax scam fraud. And the threat of tax scams are a reliable certainty when it comes to tax filing season.

Tax-Filing Uncertainty Fuels Fraudsters’ Efforts

US taxpayers are typically under extraordinary pressure when it’s time for them to file their taxes. The process typically involves searching for W2s, an assortment of 1099 forms, an accounting of charitable donations from the past year, and any other documents to present to the Internal Revenue Service (IRS).

For many American taxpayers, the process is incredibly stressful. Many people go into the process uncertain if they will receive a refund from the government or if they will receive a hefty tax bill at the end of the day. It’s common for many taxpayers to put off the filing ritual until the last minute (unless the filer is highly confident they will receive a tax refund). 

A Guide to Different Tax Scams 

Fraudsters tap into this anxiety to defraud unsuspecting targets. They’re also highly skilled at exploiting the notoriously confusing nature of US tax laws and incorporating it into their scams. Here are just a few of the ways fraudsters take advantage of peoples’ confusion and stress to push their scams.

Tax-Based Phishing Scams

Phishing is a favorite tool among fraudsters. At tax time, fraudsters send out emails claiming to be officials from the IRS or another government agency. They might claim there is missing information with their target’s tax return and ask them to fill in important details. If the victim falls for the scam, they will have unwittingly revealed their personal information to the fraudster. 

IRS-based Vishing Scams

Fraudsters can also rely on vishing (voice phishing) to target their victims. In this case, they will call a victim and pretend to be with the IRS. To make their story convincing, they tell the victim that there is a problem with their filing that could result in the victim getting fined or even face jail time. The fraudster either offers to fix the error by getting the victim’s personal details over the phone or urges their victim to pay a fee via wire transfer, instant payment services, or credit cards to resolve the issue.

Scams Promising a Generous Tax Refund

Posing as a tax filing professional is another popular approach with fraudsters. In this scenario, they pretend to be a tax preparation expert and offer their services to victims. In many cases, they’ll promise a very hefty tax refund. Victims provide their sensitive information and payment for their services, but don’t see a refund.

Filing a Tax Return in a Different Person’s Name

Fraudsters are also known to file tax returns using another person’s identity. They use a blend of real and fake information in their filing and provide a different address or bank account to receive a refund intended for the real taxpayer. Chances are, the real taxpayer will not learn about the fraud until they attempt to file their tax return. 

Tips for Banks and Consumers to Avoid Tax Fraud Scams

By no means is this a complete list of fraudsters’ tactics. The confusion, anxiety, and stress related to tax filing creates an ideal environment for fraudsters to trick taxpayers using a wide range of ploys to separate people from their money. That’s why it’s important for both banks and consumers to be on high alert for fraudsters’ dirty tricks. 

Here’s what banks should do to prevent tax-related fraud.

  • Match the Name on the Refund to the Accountholder: Banks must ensure that deposited money matches the name on the account. Using fuzzy matching logic can determine if a refund is intended for the account recipient. For example, a refund intended for John Smith that ends up in an account belonging to Richard Jones should raise suspicions and prompt an investigation. Banks face a reputational hit if fraudsters use their organization to commit crimes.
  • Watch for Abnormal Bank Account Activity: Banks should consider factors such as how long the account has been open and the normal rate of transactions. If the account is suddenly seeing a rapid rise in deposits, that is a red flag that it’s being used by criminals to receive illicit funds. On the flipside, also watch the pace of debits and transfers. A rapid rise in attempts to move money out of an account is another red flag banks must monitor.
  • Educate Bank Customers About Tax Scams: Banks should also take time to raise awareness of the different types of fraud scams that target their customers. Helping customers to protect themselves goes a long way in reducing the effectiveness of a tax fraud scam.

Here’s what bank customers can do to protect themselves from tax-related fraud scams.

  • Be Skeptical of the Tax-Related Messages: Banking consumers should be on high alert to protect themselves from fraudsters’ tax scams. If an offer to get the biggest possible refund from the IRS sounds too good to be true, then chances are, it probably isn’t true. Consumers need to take the time to educate themselves on the types of scams fraudsters employ in order to keep both their personal information and their finances safe.
  • Report Suspected Tax Schemes: Banks should also encourage their customers to report fraud attempts – whether they happen by phishing, vishing, or another means – to the authorities. If a customer receives some kind of online fraud attempt, for example, they can report it to the FBI’s Internet Crime Complaint Center (IC3). Or if they believe they have been defrauded, they should report the incident to the IRS or Social Security Administration. While they might not get reimbursed, reporting these incidents will help authorities understand the scope of the fraud threat.
  • File Tax Returns Early: Consumers who file early with reliable services will be in a better position to detect tax scams. If a fraudster claims you have to provide your tax information over the phone, you’ll know that you’ve already given your information to the appropriate party. Plus, if you’re eligible for a tax refund, you’ll receive it earlier. 

Remember that fraud is as much a certainty in life as taxes (and death, of course!). This tax filing season let’s all do our part to keep our refunds to ourselves and keep fraudsters out in the cold.

Download the Feedzai Q2 2022 Financial Crime Report: The RiskOps Age to learn the most popular fraud schemes, global fraud hotspots, and the latest in consumer spending trends.