Tax season is sometimes a nightmare for small business owners. When employed folk complain about their difficulties with a single W-2 and the standard deduction, small business owners just roll their eyes. The mess of paperwork, regulations and fees would drive most people right up the wall.
There’s another group who relies on that struggle to make an opportunistic buck: scammers. The IRS just released its annual report of the “Dirty Dozen” tax scams to watch out for in 2015. Phone scams targeting small business owners remain near the top. The FTC reports that tax-related identity theft is the most commonly reported identity theft crime; complaints rose a staggering 230 percent between 2013 and 2014.
Scammers are increasingly targeting small businesses. They know the tax situation for small business owners is far more complicated and that businesses have much more credit available than the average individual. A richer reward and a distracted mark are like dollar signs for these criminals.
The scam works as follows:
A con artist calls your small business and threatens you with fines, penalties and even jail if you don’t cooperate. The sky’s the limit on what they might request. Some will be content with demanding a huge payment – thousands of dollars. Others will press you for personally identifying information like your financial account numbers, credit card numbers, or tax identification number. These numbers will be later used to commit other forms of fraud or identity theft.
The persuasive power of this scam comes from emotional contrast. The caller will begin with hostility and aggression to put you on the defensive. This assault is followed with a conciliatory approach. The scammer will take your side and offer to take care of this if you cooperate. Imagine good cop/bad cop, but played by the same person.
Other versions of the scam might play another angle, insisting that you’re owed money in the form of a refund. The caller will ask for your account number for depositing the additional money. Of course, no refund occurs and the caller will milk your checking account for all they can.
Whatever the approach, the result is the same: You’re left sorting out the mess of an identity theft scam and perhaps losing all the proceeds of your business. Don’t let it happen to you. Follow these three steps to avoid this scheme.
1.) Stay calm
The power of the scam is in its ability to get you angry, scared or confused. At that point, you’re not deciding or processing. You’re reacting. Reactions can be influenced much more heavily by tone and selective presentation of information. When you stay calm, you remain more in control of the situation.
Think back to your last interaction with government. Maybe you needed to get permits for your business or wanted support from the chamber of commerce. Whatever it was, it didn’t happen that day. It probably didn’t happen that week. Government entities move at a glacial pace, and no one from the IRS is going to take your house if you don’t pay right this very minute.
“The first IRS contact with taxpayers is usually through the mail,” said IRS Commissioner John Koskinen in a statement. “Taxpayers have rights, and this is not how we do business.” Before any legal action is taken, the IRS would send a notice via certified letter, which requires a signature. It’s extraordinarily unlikely that you would miss a notice like this one.
2.) Know your rights
Those taxpayer rights Mr. Koskinen mentioned are important. Before the IRS could seize your property, they would have to take you to court. Before they could put you in jail, you would have to be convicted of a crime. In both cases, your property and freedom are protected by the demand for due process of law.
If you have reason to worry about your taxes, your first call should not be to the IRS. It should be to a tax lawyer. A lawyer will be able to tell you with certainty whether or not you should worry, and they will be able to advise you on what to do to keep yourself out of trouble.
Under no circumstances should you comply with a telephone or email demand for money by someone claiming to represent the government. No government agency in the country would operate like that. It would be a serious violation of your rights.
3.) Gather information and report
If you’re the target of a scam like this, there are several agencies set up to help you. You should record as much information as possible from the scammer, including the name they’re using, the phone number they’re calling from and any other possibly identifying information. Odds are good they will use this same information in another scam. Also, don’t forget to record the basics: the date, a brief summary of the threat and how they contacted you.
Once you have this information, contact the Tax Inspector General for Tax Administration through their website: www.treasury.gov/tigta. They have a form to use in reporting a tax official impersonation scam.
The Federal Trade Commission also maintains a database of scams to help other consumers avoid being tricked. You can report this incident to them at www.ftccomplaintassistant.gov. These reports will also help if you accidentally released information or made a payment to a fraudster.