IRS scams to watch out for

About a year ago, I got a phone call from a frantic client. The Internal Revenue Service had called to tell her she was under investigation for tax fraud and that a warrant had been issued for her arrest — unless she paid the IRS $1,000 that day. She was frightened and worried that she was in serious trouble. Fortunately, before taking any action, my client called me to see what was going on. It was a scam.

From threatening phone calls to emails promising thousands in refunds, IRS scams are sophisticated and alarming. But by understanding a few key points about how the IRS operates, taxpayers can avoid losing money or compromising sensitive personal information.

IRS scams are sophisticated

Many scams today can be quite convincing. For this client, the caller ID showed that the call was coming from Washington, D.C. When my client hung up, the phone rang again, and the call appeared to be from her local sheriff’s department saying that deputies were coming to arrest her. Then the IRS number called again, telling her she had to get a prepaid Visa card with $1,000 on it and that someone would come to her home and pick it up that night.

Once she contacted me, I had her call the number from the IRS caller while I was on the phone. When the man answered, he repeated the same threats. When I asked for his badge number (all IRS employees have a badge number), I noticed that it wasn’t enough numbers and told him so. I told my client to hang up immediately. This was definitely a scam.

In another incident, a client forwarded me an email that appeared to be from the IRS. It said that my client had to go to another website, provided in the email, to retrieve a $7,000 refund that was unclaimed from a previous tax year. When I clicked on the link, it took me to a site that looked official. All my client needed to do was enter his Social Security number and bank account information, and the IRS would directly deposit the supposed refund into his account. Yeah, right. In this case, I could tell this was a scam because the website didn’t have an irs.gov address.

How the IRS really works

You might be wondering why anyone might fall for these tricks. Very simply, the IRS scares people. In fact, that’s the main reason I have a job. People know that the IRS can take certain actions against them for failing to pay their taxes, or they have heard that they can be put in prison for noncompliance with IRS rules. But only some of what you have heard about the IRS is true. The rest is myth.

After 22 years in practice dealing with the IRS every day, I can tell you that the IRS does not operate in the ways described in these scams.

First of all, the IRS will never put you in jail for not paying your income tax. Simply making a mistake or being unable to pay even though you’ve filed your return is not criminal. Intentionally evading taxes is criminal. Failure to file a return or filing a false return is criminal, too, and will be investigated as such.

When you do have issues with the IRS, agents may call you or visit your home or business, but they will never demand payment that day, much less on a prepaid Visa card. Usually, the IRS operates by snail mail. You would receive a letter from the agency telling you that there was an issue with your tax return. What’s more, the IRS will never send you an email. Its systems are not set up for that. If you get an email that states it is from the IRS, delete it.

You also have rights as a taxpayer. Your most important right is the right to be represented. Just as you would hire a lawyer if you had a legal issue, you would hire an enrolled agent to represent you before the IRS if you have an issue with your taxes. Enrolled agents are the only people who have been given authority by the IRS to represent taxpayers.

Scare tactics

These scams and plenty of others have been around for a long time. Don’t fall prey to them. If you are concerned about communications you receive from the IRS or have other problems with your taxes, contact a qualified professional to help you sort it out. Don’t let scammer scare tactics get the best of you.

This article first appeared at NerdWallet. Learn more about Craig W. Smalley on NerdWallet’s ‘Ask An Advisor.’