Mellody is president of Ariel investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS news.
Tom: It’s that time of year again, and we are talking about taxes!
Mellody: We certainly are, Tom. While it may seem like you have plenty of time left, there are only 8 more weeks until the April tax filing deadline. Employers are sending out W2 forms, if they haven’t already. The airwaves are full of commercials for tax preparation services. And scammers are gearing up to try and take advantage of you. We have seen a big story erupt around fraudulent filings with TurboTax most recently. All signs that tax season is upon us, Tom.
Tom: Let’s start with TurboTax. What is the issue there?
Mellody: The big news here is that fraudsters have used the company’s software to file false returns. It started with filers learning that someone had already filed a state tax return with their information, and now the FBI is investigating whether or not federal returns have been filed. While intuit, the company that owns the TurboTax program, has said the information was not accessed via their computer system, it exposes a big opening in the electronic or e-file tax systems.
And it means that many people who have yet to file – most Americans, in all honesty – have yet to find out if someone has already fraudulently filed for their tax return already. That means that for some people, they have a long slog of working with the IRS ahead to straighten out any fraudulent activity, while the rest of us are faced with the prospect of filing delays as the IRS and FBI get to the bottom of this.
Tom: What are the goals of these tax scammers, Mellody?
Mellody: The bad guys have two big goals: to get ahold of some of your money directly, just like these criminals filing fraudulent returns on TurboTax, or to steal your identity and reap financial rewards in that way.
First, let’s start with ways the bad guys target your money directly during tax season. The big one is return preparer fraud. While, most tax professionals are honest and above board, you need to be cognizant that there are some out there who do commit refund fraud. These scammers may also promise big refunds, beyond the usual amount that you get.
Anyone who asks you to sign a blank tax return or promises a large refund without first examining your financial records definitely falls into this category. The second big con that emerges every year around tax time is fake charities. The bad guys falsely pose as charitable organizations seeking donations that they say are tax deductible when they aren’t, and simply walk away with your check.
Tom: What about the indirect route to our wallets?
Mellody: The big scam here is identity theft. The effects and losses caused by personal identity theft in this country are huge. Nearly 20 million people experienced at least one identity theft incident last year in total, many of them during tax season.
What scammers typically do around this time of year is steal your social security numbers and personal information, and then use this information to submit false tax filings seeking refunds. In terms of tax fraud alone, the IRS estimates it paid over $5 billion in improper identity theft refunds during the 2013 tax-filing season. How do they do this? Aside from impersonating tax preparers, they use phone scams and phishing.
There’s been a surge in aggressive and threatening phone calls by scam artists who impersonate IRS agents to get your information, as well as an uptick in fake e-mails or websites asking you to submit a social security number or other identifying information.
And beyond tax returns, the thieves can keep on taking. Once identity thieves have your personal information, they can open new credit card accounts in your name, commit phone or utilities fraud by starting new accounts in your name, clone your ATM or debit cards, or even take out loans.
Tom: how can we protect ourselves?
Mellody: in terms of preparer fraud, there are a number of things you can do. The first thing to do, particularly if you are new to having someone prepare your taxes for you, is to read the IRS advice on how to choose a tax professional. Beyond that, make sure you avoid anyone who bases the fee on a percentage of the refund, or anyone who does not request receipts or ask questions to determine your eligibility. Never sign a blank return. And always, always make sure that your preparer also signs and provide their IRS preparer tax identification number (PTIN).
As for fake charities, the first thing to do is to decline to contribute until you have taken the time to check their website. If there is no confirmation or documentation there, or the charity does not have a website, you can go to the IRS site to verify tax-deductible charitable organizations.
Tom: What about scams and identity theft?
Mellody: It’s really pretty straightforward, but these tips warrant saying every year. First, do not give out personal information – things like your name, your social security number, your bank account information – over the phone or via email. Make sure you perform due diligence on your tax preparer. Know that the IRS will not initiate contact by phone or email. And you have any questions about possible fraud, call the IRS by phone.
More broadly, just remember that keeping cards on file with websites like Amazon puts you at greater risk in the event of a data breach. And be very careful when it comes to unsecured wifi connections that might expose your information.
Tom: Thanks again for always looking out for us, Mellody!
Mellody: You are welcome, Tom! Have a great week!
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