Small business owners are a hard-working and busy bunch—which makes them ideal targets for unscrupulous tax scammers. Tax scams can strike at any time of year, not just at tax season.
Fortunately, taking some simple precautions can help protect your business from tax fraud.
Here are five of the most common business tax scams and how to avoid falling prey to them.
1. Telephone tax scams
How it works:
Scammers call business owners claiming to be IRS employees. They tell you that you owe the IRS money and need to pay it via wire transfer, gift card or other particular method. To intimidate you, they may threaten you with arrest, suspension of your business license, or suspension of your driver’s license. This scam often targets immigrant business owners and threatens them with deportation. In some cases, the caller claims you are due a tax refund and tries to get personal information from you.
How to protect your business:
Phone scammers have become much more sophisticated in recent years. They may have (fake) IRS identification badge numbers, and they can even change your caller ID to make it look like the call is coming from the IRS. However, you can spot a telephone tax scam by keeping these IRS facts in mind:
- The IRS never threatens to have taxpayers arrested for nonpayment of taxes.
- The IRS never calls taxpayers requesting immediate payment via a specific payment method.
- The IRS never asks for taxpayers’ credit or debit card numbers over the phone.
- The IRS never demands payment without giving taxpayers an opportunity to question or appeal the amount due.
- The IRS almost always initiates contact with taxpayers through US postal mail, not through a phone call.
2. Phishing tax scams
How it works:
These bogus emails look like they’re coming from your accountant, tax preparer, bank, the IRS or other legitimate source. They often use “spoofing”—creating fake email addresses that look almost like the real thing (such as 1RS.gov instead of IRS.gov). They may ask for bank account numbers, EIN or Social Security numbers, credit card numbers or other financial information. They may include links to a fake site that looks like a trusted site, such as your business bank or the IRS website, or may have an attachment that contains malware or a computer virus. (See common examples of email phishing scams.)
How to protect your business:
Since the IRS doesn’t initiate contact via email, you know any email from them is fake. But what about emails that appear to come from your accountant, bank or other source that might really need information about your taxes? Email phishing scams rely on the fact that everyone reads emails in a rush. Take time to carefully review emails—this generally reveals typos, misspellings, blurry logos or other giveaways of fraud. To be safe, always call the sender to make sure the email is legitimate before sharing any information.
3. W2 tax scams
How it works:
Cyber criminals send spoofing emails that appear to come from within your company, asking HR, payroll or accounting for W-2 forms for your employees. They then sell the personal information on the forms or use it for identity theft or tax fraud.
How to protect your business:
The IRS recommends limiting the number of people at your company who are authorized to handle requests for W-2 forms, and taking additional steps to verify the request before sending sensitive data by email.
4. Bogus charity tax scams
How it works:
Scam artists set up fake charities whose names or website URLs are close enough to those of legitimate charitable organizations to cause confusion. Your business makes a tax-deductible donation, only to find out later that the charity doesn’t exist and the donation is not tax-deductible.
How to protect your business:
Before donating to any charity or nonprofit, use the IRS’s Exempt Organizations Select Check tool to see if contributions are tax-deductible. (You’ll need the group’s Employer Identification Number, or EIN.)
5. Fraudulent tax preparer scams
How it works:
Fraudulent tax preparers use the financial information they get from preparing your tax returns to steal your identity or obtain fraudulent refunds.
How to protect your business:
Before working with a new tax preparer, check their credentials. You can search the IRS directory of federal tax return preparers and look up the preparer’s license with your state Board of Accountancy to make sure it’s current. A legitimate tax preparer will never ask you to sign a blank tax return, tie the size of their fee to the size of your tax refund, or suggest that you misrepresent your income or take deductions you aren’t really entitled to. Consider these red flags. (Need a new accountant? Read these tips for choosing an accountant first.)
Further Resources to Help Prepare You Against Tax Scams
Check out the IRS’s tax scam information to learn more.
Have you been a victim of any of the above types of tax fraud? Visit the IRS website to learn how to report tax scams and what to do next.
Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
