Tax Tip Tuesday: Five Tips Your Clients Need This Tax Season, Part 5

The American College of Financial Services
March 31, 2020

Once again, March has arrived, and for most people that means they’ve arrived squarely in the middle of tax season. With all tax materials due to the IRS by April 15, financial advisors are likely to field many more questions from their clients over the next few weeks about the finer points of taxation: how can I keep the most of my hard-earned money? What deductions might I qualify for? Are there better ways to organize and file my returns than I’m currently using? The list goes on and on.

In this series we’re calling “Tax Tip Tuesday,” we outline a series of insights that you as a financial advisor, or possibly even as a client or everyday taxpayer, can use to educate yourself on some of the finer points of taxation. While all financial experts may not agree on the subjects discussed, these tips are a collection of the biggest trending topics for tax season 2020 and are things you’ll likely want or need to consider when filing your return--or helping your clients perfect theirs.


#5: Better Safe Than Sorry


The unfortunate truth is that during important times of the year, especially tax season, advisors and clients will need to watch out for scams and fraudsters trying to con them out of hard-earned money. Many of these scams take the form of cheap scare tactics and heavy-handed attempts at extortion, but as technology has evolved, other perpetrators of fraud are becoming far more subtle and sophisticated in their tactics.

The IRS, U.S. Treasury Department, and other bodies are constantly on the lookout for fraud and calling out new scams as they emerge--though they may not know about them all without consumer assistance. Here are some of the more common ones so you can best prepare, advise, and protect your clients and their assets:


The Lie: A client receives emails, texts, and/or phone calls from an entity claiming to be the IRS. They may have personal information, including the last four digits of your client’s Social Security number, that makes them seem legitimate. They demand payment of a surprise tax bill immediately--sometimes in the form of gift cards or other compensation--or they will arrest your client.

The Truth: As the IRS itself states, its representatives will never contact anyone by phone or through other digital means about tax payment--the agency communicates exclusively through snail-mail. Report such calls to the police, FTC, IRS, or other agencies, and always use direct contact numbers you look up yourself (numbers provided in digital communications may take you back to the scammers).


The Lie: An entity claiming to be an authority for an advisor’s company, a government employee, human resources official, or other higher-up contacts an advisor and asks for copies of W-2 forms for all employees or clients on some basis that seems legitimate.

The Truth: This is actually a sophisticated corporate scam where criminals have managed to trick several big companies into willingly giving up sensitive financial data. They then use them to file bogus tax returns, sell the information to other criminals online, or perpetrate other crimes such as identity theft. Always confirm directly with the supposed source of the request before sharing financial documentation.


The Lie: Your client goes to file their tax return, but is told they already filed it for the year with a series of forms that don’t represent their financial situation accurately.

The Truth: This scam can be a major headache for advisors and clients, because this could mean a scammer has managed to get a hold of a client’s personal information and used it to file a phony tax return on their behalf. The criminals usually claim a high number of deductions, leading to a big refund, which they ask to have deposited in their account instead of the client’s. In some cases, the scammer will actually send the refund to the client and then contact them pretending to be the IRS, threatening them with legal action for filing a fraudulent tax return and demanding an even bigger payoff. The IRS advises that, if a person thinks they’re the victim of a fraudulently-filed tax return, they still complete their return and print it out, mailing it physically in to the IRS along with a copy of Form 14039. Notify police, the FTC, and take all necessary steps to prevent further damage to the client’s credit or well-being from identity theft.


The Lie: A client goes to a person claiming to be a tax preparer because they don’t want to file their own taxes. The preparer seems legitimate, but makes odd requests including having the client sign blank tax returns, asking for cash payment (sometimes based on the size of your refund) without providing a receipt, or claiming deductions that don’t seem right for the client. Then, once the return is filed, the preparer skips town or otherwise ceases contact with the client, leaving them with nothing but questions when the IRS comes knocking at their door.

The Truth: One of the most insidious methods of tax scamming is when criminals pretend to be qualified tax preparers, with the intent of defrauding both the government and their client and leave their victims holding the bag. However, the problem is easily avoided: the IRS maintains a nationwide database of professional tax preparers, each of whom is issued a unique Preparer Tax Identification Number (PTIN). If your tax preparer can’t give you one, or if you can’t look them up in the system, it’s likely they’re a scammer. Criminals will make lots of promises about how they can dramatically increase the size of your tax refund--always be skeptical, and never sign a blank tax return form. It’s a green light for the scammer to fill in whatever they want, and their victim will never know.


A little vigilance goes a long way, especially during tax season. Make sure to keep an eye on your clients and keep an open line of communication to deal with potential scams before they become a bigger problem.


Read more of Tax Tip Tuesday here:

Part 1

Part 2

Part 3

Part 4