4 Tax Scams and How to Avoid Them

— July 31, 2017

As sure as your business will pay taxes next year, some will try to scam their way out of it. Tax fraud, unfortunately, is a common occurrence that startup owners need to keep in mind.


The “Dirty Dozen” is a yearly report put out by the IRS dedicated to just that. The agency reports the 12 biggest running tax scams as a word of warning for both individuals and organizations. Getting caught up in one of these swindles can be a huge problem for you and your business.


Lots of trouble, including steep tax penalties, comes when your startup gets scammed. Some of the most common scams a business should watch out for are:


• Phishing: Taxpayers should be wary of phony emails and websites hoping to pilfer personal information, as the IRS reported a big spike in phishing and malware during the past two years’ tax seasons. Tax, payroll, and human resources professionals have been especially targeted.


• Phone scams: It’s not just emails: Criminals pretending to be IRS representatives over the phone continue to be an issue for taxpayers. These kinds of phone scams have recently spiked as perpetrators use arrest records, deportation, and other means to scare taxpayers.


• Identity theft: Taxpayers should be on high alert about this. The IRS is doggedly investigating those using others’ Social Security numbers to post falsified reports and is seeing success, but personal due diligence is necessary so that you don’t fall prey.


Not only can ID theft ruin your personal and business credit, it’s time-consuming and difficult to fix. Meanwhile, duplicate tax returns filed with the IRS may cause a $ 5,000 fine for “frivolous tax returns” and a 75 percent penalty for underpayments.


• Falsely padded deductions: Some taxpayers inflate the deductions or expenses they claim on returns to reduce their tax liabilities or to get more back in refunds. Resist this temptation, as it is very improper and can incur steep fines and penalties.


These four are the ones most important to startup founders. Your company being in its early days means it may lack the infrastructure to combat these and other scams, but awareness can be the first step toward fighting them off.


Scare Off Scammers


Thwarting fraud is all about recognizing potential red flags. When sifting through your company’s taxes, use these best practices to help identify and cut potential scammers off at the pass:


1. Be on the lookout. It’s important to understand the Internal Revenue Service does not contact taxpayers through email about bills or refunds. Don’t click any email links that purport to be from the IRS, and be wary of any hyperlinks outside IRS.gov.


A best practice is to have your tax advisor review any notices you receive before you act. Don’t reply, open any attachments, or click any links — just forward to phishing@irs.gov.


2. Ask for name and rank. If contacted over the phone, be skeptical and ask the person for his full name and identification number (which most taxing agencies require employees to provide).


Also, avoid divulging any personal or business information over the phone, instead referring the caller to your tax professional. If you think it may be the IRS, call the agency back at 800-366-4484 before discussing any personal matters.


3. Track your expenses carefully. To avoid padding deductions, you should have a proper accounting system in place to ensure all business expenses are properly recorded. Working with an accounting pro in this area will help you determine what backup documentation should be kept. There are plenty of legitimate business deductions that can make tax season easier, so there’s no reason to cheat.


Death and taxes are the only guarantees in life, and you can’t cheat either system for long. That’s why it’s always best to play by the rules. Regularly recording and analyzing financial data ensures others are playing it straight as well.

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Author: Anjum Tunuli


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