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5 Scams to Avoid

5 Scams to Avoid by Paul Davis

Financial scammers are always attempting to find new and interesting ways to get access to your money. While scammers often make little mistakes that show their hands to their targets, you might find yourself already in communication or even scammed before you catch on.

To help you stay safe and anticipate possible scams, here is a list of five that we have heard about from different banks, government agencies, and more that you should be aware of.

1. The “Pay Yourself Scam”

This was brought to our attention by Bank of America but it is a variation on a common theme. In this scam, someone will spoof your bank via text and send you a fraudulent security alert.

The text could look like this:

Bank of America: Did you pay $100 to Alibaba Travel in Cairo, Egypt? Click Link to resolve this issue.

Of course you did not pay money to whatever store the text is asking you about so you click the link. At this point, the scammer asks you to prove your identity by sending money through Zelle, Paypal or another app. The apps may vary but the end goal is the same: getting access to some or all of your finances.

Once you enter the information into their app, they get either access to your bank or a large amount of money.

Resolution Tip

Never click links in texts from official sources like banks, the IRS, Social Security, or the Sheriff’s Office. These links can look official but be used to gain important personal information the scammers can use against you or sell to other scammers.

Always find a number or email address independently of any information that was sent to you. For example, if you think your bank has sent you a text, go to their website, find their customer contact information and call them to ask if they have reached out to you.

This helps verify whether something is legitimate and does not expose you to data harvesting by interacting with a spammer’s text or email.

2. The Tax Preparer Scam

In 28 years of business, we have seen many people come to us for help after messing up on taxes. It gets worse when the taxpayer has been scammed by either well-meaning and underqualified tax preparers or by a thief posing as a tax preparer.

This scam can result in your tax refund being deposited into someone else’s account, it can result in someone falsely claiming certain deductions in order to increase their percentage-based fees, or it can result in your identity being completely stolen.

Resolution Tip

The IRS has a list of items to check when you are looking for a tax preparer. These include looking up your tax preparer’s certification and a number of other tips.

Obligatory self-mention: Danielle Hoyles and Melynda Rushing both meet all the IRS’s recommended tips for picking a tax preparer.

3. The Get Out of Jail Scam

You receive a phone call or text:

Los Angeles County Sheriff is trying to find you to enact an arrest warrent against you for failure to apear at a recent court case. Please text or call this number to resolve this urgent issue.

The urgency of having some law enforcement agency like a Sherrif’s Department or the IRS coming after you is used to convince you to give the scammer important information, access to your bank accounts, or just $500 in Walmart cards.

Resolution Tip

If you have ever dealt with legal issues, you will remember that requests like this (warrants, restraining orders, etc.) have to be delivered by certified mail. In addition, the same tips apply from the pay yourself scam. If you have any questions, find a contact number from a different source and reach out to the named agency directly.

Finally, if something sounds too good (or too bad) to be true, it usually is not true. If you receive a phone call saying you just won $1,000,000 and you have not entered Publisher’s Clearinghouse or bought and registered a winning lotto ticket, the phone call is a scam. Likewise, if you receive an arrest warrant text from a locality you have never been in, it is probably a scam.

4. The Forward Some Money Scam

This is another scam that can be enacted by a friend or by a thief. Either way, the basic principle is asking you to send them money that they will pay off via some means. This can be a payday scam (please send me $100 that I will pay you tomorrow on payday), a starting business scam (I am sending you a $2000 check, $1000 for you and $1000 for another contractor. Can you send him the $1000 so we can get started?).

The basic principle is that the well-meaning or nefarious scammer is using interpersonal issues to drive urgency while not having the means or intention to pay you back.

Resolution Tip

If it’s a friend, realize that “you’re never really helping someone who’s incompetent with money by simply handing them cash.” ~Dave Ramsey

If it’s a customer or other stranger, don’t do any financial or labor commitments until you have cleared the payment in question.

5. The Classic Pyramid Scheme

Is your distant relative who is selling the newest at home opportunity working on starting a small business or a victim of a pyramid scam?

These have varied from annoying chain letter scams to Wolf of Wall Street levels of corruption, but all true pyramid schemes have one thing in common.

The only thing they sell is the money-making opportunity.

Resolution Tip

A salesperson sells something more than the opportunity to sell the opportunity to sell. A multi-level marketing business opportunity has to have something that it is selling in order to be a legitimate business: cosmetics, health-food, and more are all common legitimate industries that use peer-to-peer and multi-level marketing to grow.

But if all that your cousin’s niece’s best friend is selling is the opportunity to make a lot of money by signing up a lot of people, you are most likely looking at a scam.

Stay Focused to Avoid Them All

Scammers use our fears, anxieties, and sometimes greed to distract us from living our normal lives. Don’t lose focus on living your life by people interrupting you with urgent-sounding but improbable information.

Take time to research and choose your tax preparers. Reach out to your bank if you are worried about account security.

Stay safe, and remember that we are open all year round to help you deal with taxes no matter the time!

Late September IRS Updates

Improperly Forgiven PPP Loans are Taxable

The IRS has released guidance addressing improper forgiveness of Paycheck Protection Program (PPP) loans. When a PPP loan is forgiven based upon misrepresentations or omissions, the taxpayer is not eligible to exclude the forgiven loan proceeds from taxable income. Taxpayers who inappropriately received PPP loan forgiveness are encouraged to file amended returns and come into compliance. 

September 30 Deadline for COVID Penalty Relief

The IRS reminds struggling individuals and businesses affected by the pandemic that they may qualify for late-filing penalty relief if they file their 2019 and 2020 returns by September 30, 2022. This aims to help not only taxpayers but to allow the IRS to focus resources on processing backlogged tax returns in an effort to return to normal operations for the 2023 filing season. The relief applies to the failure-to-file penalty, usually assessed at a rate of 5% per month, up to 25% of the unpaid tax, when a return is filed late.

Victim Relief Abounds

  • Victims of storms and flooding that began on September 15 in parts of Alaska now have until February 15, 2023, to file various individual and business tax returns and make tax payments. This applies to those in FEMA-designated areas, currently the Regional Education Attendance Areas of Bering Strait, Kashunamiut, Lower Kuskokwim and Lower Yukon. 
  • Hurricane Fiona victims in all 78 Puerto Rican municipalities also have until February 15, 2023, to file various returns and make payments. 
  • Farmers and ranchers in applicable regions forced to sell livestock because of drought conditions have more time to replace their livestock and defer tax on any gains from the forced sales. This includes parts of 44 states, and generally applies to gains realized on the sales of draft, dairy, or breeding livestock. Sales of other livestock held for slaughter or sport, or poultry, are not eligible. More information is available in Notice 2022-43.
  • Look for much of Florida to be offered relief shortly. Updated localities are always available on the disaster relief page of IRS.gov.
  • Employers using payroll service providers should ensure their provider has a fiduciary bond in place to protect the employer against a possible default. Using the Electronic Federal Tax Payment System (EFTPS) to make federal tax deposits and business tax payments makes it easy and convenient to pay the government even when disaster displaces employees and businesses. Any business can create an EFTPS account.

Reconstructing records after a disaster may be required for tax or insurance purposes or getting federal assistance. For more information, visit National Preparedness Month.

IRS Updates September 13

Estimated Taxes Due 15 September

The IRS reminds taxpayers who pay estimated taxes that the deadline for payment of their third quarter estimated taxes is September 15, 2022. Those who typically make quarterly estimated tax payments are the self-employed, investors, retirees, or those receiving income from dividends, interest, rental income, alimony and other sources not subject to withholding. Those who expect to owe at least $1000 in taxes for 2022 (after withholding and tax credits) should make quarterly payments. Special rules apply to some taxpayers, such as those in a federally recognized disaster area, farmers, fishermen, and those who receive income unevenly during the year. Underpaying taxes may result in a penalty.

National Preparedness Month

In recognition of September as National Preparedness Month, the IRS urges individuals, organizations, and businesses to update and secure their records. The ongoing threat of wildfires, as well as that of hurricanes, underscores the importance of having and keeping an updated emergency preparedness plan. 

  • The IRS recommends taxpayers keep critical documents inside waterproof containers in a secure space. This includes tax returns, birth certificates, deeds, titles, insurance policies and other such items. 
  • Copies should be made and given into the keeping of a trusted friend or relative at a distant location. Digital copies can be stored in a cloud-based application. 
  • Document inventory of personal and business property. Photos or videos are helpful, as well as written descriptions including year, make, and model of equipment. The IRS offers workbooks to help individuals and businesses compile inventory lists. 
  • Employers using payroll service providers should ensure their provider has a fiduciary bond in place to protect the employer against a possible default. Using the Electronic Federal Tax Payment System (EFTPS) to make federal tax deposits and business tax payments makes it easy and convenient to pay the government even when disaster displaces employees and businesses. Any business can create an EFTPS account.

Reconstructing records after a disaster may be required for tax or insurance purposes or getting federal assistance. For more information, visit National Preparedness Month.

IRS Updates End of June

Expanded Voice Bot Assistance

To help improve taxpayers’ experiences with the department, the IRS has expanded the voice bot capabilities of their customer service phone lines. Now, in addition to general and procedural answers to Economic Impact Payment (EIP) or Advance Child Tax Credit queries and other toll-free lines, voice bots will be able to help eligible taxpayers verify their identity to set up or modify a payment plan – without the long wait times. More functions are planned to be rolled out this year, including the ability to get account and return transcripts, payment history and current balance information. 

Processing Backlog Progresses

The IRS is finally wrapping up the last of the paper individual tax returns (Form 1040, error-free) filed in 2021. Due to the pandemic and staffing limits, there are about twice as many returns awaiting processing at this point compared to a typical year. Steps have been taken to address this backlog and keep up with returns filed this year. Business paper returns filed in 2021 are next, while the IRS continues to work on the remaining individual returns that need corrections or additional information. Taxpayers are encouraged to file their returns electronically to avoid future processing delays.

Electronic Corrections, Amendments Expanded

The IRS has announced that more forms can now be amended electronically, including Form 1040-NR (US Nonresident Alien Income Tax Return), Forms 1040-SS (US Self-Employment Tax Return) and Forms 1040-PR (Self-Employment Tax Return – Puerto Rico). This development will assist the IRS in avoiding continued processing backlogs. Forms 1040-X and other corrected forms have had electronic filing options in place in recent years, and paper versions of the forms may still be submitted.

Reinstated Superfund Chemical Tax FAQ

The IRS issued frequently asked questions (FAQs) regarding the reinstated Superfund chemical excise tax. Thanks to the Infrastructure Investment and Jobs Act (IIJA), beginning July 1, 2022, excise taxes on certain chemicals and imported chemical substances will be reinstated. The FAQs detail what the Superfund chemical excise tax is, how the tax is computed, and who may be liable for the tax. Currently 151 substances are listed as taxable, though that number will likely change.


Tax Updates End of May 2022

Interest Rates Increase

The IRS has announced that interest rates will increase for the third calendar quarter of the year, beginning July 1, 2022. The rates will be:

  • 5% for overpayments (4% in the case of a corporation).
  • 2.5% for the portion of a corporate overpayment exceeding $10,000.
  • 5% for underpayments.
  • 7% for large corporate underpayments. 

These rates are calculated by the federal short-term rate determined during April 2022, based on daily compounding.

Child Tax Credit FAQs Revised

The IRS has revised a set of frequently asked questions (FAQs) for the 2021 Child Tax Credit and Advance Child Tax Credit. Updates have been made to several topics, including general information, receiving advance child tax credit payments, updating your information, reconciling your payments, unenrolling from advance payments, shared custody questions and more. 

Where’s My Refund? Updated

The IRS has made a helpful improvement to the Where’s My Refund? online tool that now allows taxpayers to check the status of their current tax year and two previous years’ refunds. Taxpayers will need their Social Security number or ITIN, as well as filing status and expected refund amount for the tax year they’re checking. Previously the tool only displayed the status of the most recent tax return. The tool is usually updated overnight and gives a projected refund date as soon as it’s approved. 

Earned Income Tax Credit FAQs Revised

The IRS has revised the FAQs for the Earned Income Tax Credit (EITC). The EITC helps low- to moderate-income workers and their families either reduce their taxes owed or increase their refund (if no taxes are owed). The credit varies depending on whether the taxpayer has children, dependents, a disability or other eligible status. The FAQs explain the EITC, how it was expanded in 2021, which taxpayers are eligible, and how to claim it.

Tax Updates Mid April

Educator Expense Deduction to Increase

For the first time since it was enacted in 2002, the special educator expense deduction limit has increased from $250 per year to $300 per year. The increase begins in 2022, so out-of-pocket classroom expenses for the current year can be claimed in the deduction when filing 2022 federal income tax return next year. Those filing for 2021 are still subject to the $250 limit. Deductible expenses include books, supplies, other classroom materials, professional development courses, computer equipment and software, and COVID-19 protective items such as face masks, hand sanitizer, disposal gloves, tape, paint or chalk to guide social distancing, and other CDC recommended items.

Foreign Account Report Deadline Approaches

The IRS reminds citizens and other entities that the deadline for filing their annual Report of Foreign Bank and Financial Accounts (FBAR) is April 15. However, those who miss the deadline will receive an automatic extension until October 15, 2022. An FBAR is required for those who have: (1) Financial interest in, signature authority or other authority over one or more accounts, such as a bank account, brokerage account, mutual fund or other financial account in a foreign country, and (2) The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year. Civil and criminal penalties may apply for those who fail to report accurately.

First Quarter Deadline Approaches

The IRS reminds taxpayers that Monday, April 18 is the deadline to make estimated tax payments. This applies to the self-employed, retirees, investors, businesses and corporations. Taxes are “pay as you go” and for those who aren’t subject to payroll withholding, estimated taxes are paid quarterly. There is assistance for figuring one’s estimated taxes, as well as streamlined methods for making payments online.

EIP Letters, Corrections

The IRS has completed mailing Letters 6475 to recipients of the third round of Economic Impact Payments (EIPs) and reminds filers to double-check records when filing their 2021 tax return. Most people received the full amount in advance, but for those who didn’t, the 2021 Recovery Rebate Credit may be claimed. If a mistake was made regarding this credit on a 2021 return which has already been filed, an amended return is not necessary. The IRS will make the correction and, if the filer agrees with the correction, no action on their part is required. There may be a delay in processing a return that requires correction. 

Tax Updates Feb 12

Tax Help FAQs

Tax filing this year is a bit more complicated, with the American Rescue Plan Act (ARPA) of 2021 which expanded the Child Tax Credit for last year only. Advance payments mean more paperwork for those who received them, and potentially repaying excess amounts, or claiming credit for remaining unpaid amounts. The IRS urges recipients to save Letter 6419 so their 2021 tax return can be properly prepared. A qualified tax preparer can help with this process, and several FAQs on the topic are available.

Be Ready to File

The IRS reminds taxpayers to be prepared to file their tax return, and to that end are providing a roundup of relevant information. Readiness topics include their Tax Time Guide, dealing with advance Child Tax Credit payments or Recovery Rebate Credit, a tax document checklist, filing tips and how to find help if needed.

IRS Backtracks Third-Party Facial Recognition

In response to concerns, the IRS has announced it will transition away from using a third-party service for facial recognition. This was intended to help authenticate people creating new online accounts. The IRS pledges to find authentication processes that do not involve facial recognition and which protect taxpayer data. This is not expected to interfere with filing returns or paying taxes owed, and people should continue to file their tax returns as they normally would. 

IRS Suspends Automatic Notices

The IRS is suspending the mailing of several letters to individuals and businesses. These automated notices include Balance Due notices, Notices of Unfiled Tax Returns, and Withholding Compliance letters. This suspension is intended to allow the IRS to catch up with the backlog of several million original and amended tax returns that have not been processed due to the pandemic and pandemic response. Other letters are legally required to be issued within a certain timeframe and cannot be stopped by the authority of the IRS. 

Tax Updates December 17

National Tax Security Awareness Week

The IRS and Security Summit partners spent a week sharing information with taxpayers and tax professionals about security risks and how to minimize them. 

  • Day 1: Tax scams and identity theft – identifying phishing and tax scams, protecting devices with security software and protecting your sensitive information.
  • Day 2: Fake charity scams – verifying a charity before you give, and tips on keeping your financial and personal information safe.
  • Day 3: Identity Protection PINs – participating in the IP PIN program helps individual taxpayers protect against identity theft. The IP PIN tool is scheduled to launch January 10, 2022.
  • Day 4: Tax Pros – pandemic circumstances have added to the security risks from cybercriminals. Using the “Security Six” measures helps protect client data.
  • Day 5: Businesses – cyberattacks and theft of customer and business information remain serious problems. Follow the Federal Trade Commission’s best practices to maintain cybersecurity.

New in 2022

The IRS is encouraging taxpayers to ready themselves for filing their 2021 federal tax return. Key changes affect millions of taxpayers, and special steps regarding Economic Impact Payments (EIPs) and advance Child Tax Credit payments must be taken. For instance, those who received less than the Child Tax Credit amount for which they were eligible may claim the remainder on their return, while those who received more will have to repay the excess payment when they file. Letters regarding these amounts, as well as EIP amounts paid, will begin arriving in January. There is also a charitable deduction which may be claimed by taxpayers who take the standard deduction.

Required Minimum Distributions for Retirees

The IRS reminds retirement plan participants and individual retirement account owners that required minimum distributions (RMDs) must usually be taken by December 31. These are generally minimum amounts that must be withdrawn annually, depending on age or date of retirement. Owners of traditional IRAs, traditional SEP IRAs, SIMPLE IRAs, and workplace retirement plans are subject to RMDs. Roth IRAs do not require distributions while the original owner is still alive. 

Tax Updates November 30

New Tool for U.S. Withholding Agents

The IRS has launched a new online tool designed to help withholding agents comply with their responsibilities with respect to Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. Agents such as insurance companies, universities, entertainment venues, and banks and other financial institutions must file an information return on Form 1042-S to report payments made from U.S. sources to foreign persons. A tutorial is also available. 

Per Diem Rates Guidance Provided

The IRS has issued guidance to make clear how the temporary 100% business deduction for food and beverages from restaurants applies to taxpayers who follow Revenue Procedure 2019-48 for using per diem rates. The temporary exception to the 50% limit was provided by the Taxpayer Certainty and Disaster Relief Act of 2020. The exception allows the taxpayer to treat the full meal portion of a per diem allowance as being attributable to food or beverages from a restaurant beginning January 1, 2021, through December 31, 2022.

New Online Identity Verification

The IRS has announced the launch of an improved online identity verification and sign-in process for those using online tools and applications. Using the new mobile-friendly verification procedure allows access to The Child Tax Credit Update Portal, Identity Protection PIN, Online Payment Agreement, and other services. The IRS is using ID.me to provide verification services. 

SLFR Funds Answers

The IRS has provided a FAQ regarding Coronavirus State and Local Fiscal Recovery (SLFR) Funds. These funds give eligible state and local governments substantial resources to meet pandemic response needs, and the answers (in FS-2021-16) detail the tax consequences for individual recipients and reporting requirements for employers and state and local governments. Some recipients may have to report payments as income and may owe tax. 

IRS Updates Mid-November

Charitable Giving Deduction

The IRS reminds taxpayers that they can take advantage of a special tax provision to easily deduct up to $600 on their 2021 return. Typically, those who choose to take the standard deduction cannot claim charitable contribution deductions, but the Taxpayer Certainty and Disaster Tax Relief Act of 2020 extended this temporary provision through the end of 2021. Single filers may deduct up to $300 for cash contributions, and those married filing jointly may deduct up to $600. Qualified charities can be found using the IRS Tax Exempt Organization Search tool. 

401(k) Limit Increase Announced

The IRS has announced that the contribution amount for 401(k) plans in 2022 will be $20,500, up from $19,500. Income ranges for determining eligibility to make deductible contributions to traditional and Roth IRAs, and to claim the Saver’s Credit, also are increased. The limit on annual contributions to an IRA remains unchanged at $6,000, as does the $1,000 IRA catch-up contribution limit for those aged 50 and over. Other cost-of-living adjustments for 2022 are in Notice 2021-61.

Inflation Adjustments Announced

The 2022 annual inflation adjustment for more than 60 tax provisions, including tax rate schedules, have been announced. These adjustments generally apply to tax returns filed in 2023. The standard deduction for married couples filing jointly will be $25,900, $800 more than the current deduction. Single taxpayers or married individuals filing separately will have a standard deduction of $12,950 and for heads of households it will be 19,400. The maximum Earned Income Tax Credit amount is increased, as are the monthly limitation for parking, foreign earned income exclusion, the Alternative Minimum Tax exemption amount, and many more.

Unemployment Compensation Exclusion FAQ

The IRS has updated its Frequently Asked Questions (FAQs) on the 2020 unemployment compensation exclusion. The updated topics include Amended Returns (1040-X), Receiving a Refund, Letter, or Notice, and Post Unemployment Compensation Exclusion Adjustment. FAQ pdf fact sheet is available here.