7 On Your Side: How to avoid tax scams

This is really important. The tactics range from promises of a faster or bigger refund to threats of arrest or prosecution. The government estimates fraud will cost taxpayers $21 billion this year, so Consumer Reports explains how you can avoid being one of those that gets ripped off.

Allen Abrams was stunned recently to get a phone call from someone who sounded like a legitimate IRS agent. He demanded a $5,000 tax payment within the hour or else.

"I would be handcuffed and thrown in jail. It was absolutely the most terrifying thing I have experienced that I can remember," said Abrams.

This type of brazen attempted fraud has happened in nearly every state. Consumer Reports says the first red flag was the phone call. The IRS typically contacts you first by mail, not by phone.

"Still, the imposters can be quite convincing. They often use phony names and IRS badge numbers. They even enlist accomplices who claim to be the police," said Tobie Stanger from Consumer Reports.

Another type of scam can come through texts and emails, which demand confidential information claimed to be missing from your tax return.

"These so-called phishing schemes are aimed at getting important information like your social security number. That way the scam artist can steal your identity, and then they can claim your refund using a fraudulent tax return," said Stanger.

The IRS does not ask for personal information by email or text, so these too are red flags.

"If you think you have gotten an email phishing for confidential information, send it to phishing@irs.gov. And if you get a suspicious phone call, report the incident to the authorities," said Stanger.

You can contact the Treasury Inspector General for Tax Administration at 1-800-366-4484. It may also be appropriate to alert the FBI. That's what Allen did after his accountant warned him the phone call was probably a scam.

If you're hiring a tax preparer, here's some advice: Consumer Reports cautions don't fall for too-good to-be-true promises about a big refund or penalty reductions. Look for preparers who will sign your tax return themselves, as well as provide a preparer tax id number. And never allow a refund to go into the preparer's account. It should always be sent to you.

Consumer Reports is published by Consumers Union. Both Consumer Reports and Consumers Union are not-for-profit organizations that accept no advertising. Neither has any commercial relationship with any advertiser or sponsor on this site.

(All Consumer Reports Material Copyright 2011. Consumers Union of U.S. Inc. ALL RIGHTS RESERVED.)

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