Better Business Bureau warns of tax schemes

RALEIGH, N.C. — The slumping economy has many cash-strapped people anxiously looking forward to receiving a tax refund check this year. During this tax season, the Better Business Bureau of Eastern North Carolinaadvises taxpayers to be on the lookout for scams.

Refund Anticipation Loans (RALs) are cash advances offered by a tax preparer based on a taxpayer's anticipated refund. Anyone who relies on a RAL is essentially paying to borrow their own money. Despite the fact that the loan is extremely low-risk for the tax preparer, the rates can be extremely high for the borrower. The National Consumer Law Center (NCLC) finds that the effective annualized rate for a RAL can range from about 50 percent to nearly 500 percent.

BBB Advises: The fastest and most secure way for consumers to get their refund is to file their taxes online and then allow a direct deposit of the refund into their bank account. Taxpayers can have the money in as little as eight days. If a consumer absolutely must take out a RAL, BBB recommends shopping around, because rates and restrictions vary by preparer.

Some companies claim they can help consumers reduce the amount of money they owe in taxes or fines to the government. These claims often sound too good to be true. TV ads might include endorsements from customers who state the company worked with the IRS on their behalf and was able to reduce the amount owed to pennies on the dollar. Unfortunately, BBB has heard from consumers who paid thousands of dollars to such companies. They were devastated to learn that the company didn't keep its promise to reduce the amount owed and, in some cases, never even contacted the IRS.

BBB Advises: Consumers who have a tax debt with the IRS should first seek the advice of a trusted IRS enrolled agent, Certified Public Accountant (CPA) or a tax attorney. If a taxpayer does decide to enlist outside help when dealing with the IRS, he or she should be wary of exaggerated claims and large upfront fees, and always check out the business's report with BBB.

Phishing e-mails around tax time usually tell the recipient that there's an issue with their refund, that they are being audited, or that there is a problem preventing their taxes from being processed. In most cases, the fraudulent e-mail will provide a hyperlink directing potential victims to a Web site set up by the scammers, where victims are asked for Social Security numbers, bank account information or credit card numbers. In some cases, these illicit sites are designed to automatically install viruses and malware on the victim's computer to steal personal information without the victim even knowing what has happened.

BBB Advises: Many tax-related e-mail phishing scams are run by people and organizations operating outside the United States, and their e-mails are often rife with spelling and grammatical mistakes. Bear in mind that if the IRS has questions or concerns with a tax return, they typically contact the taxpayer by mail, not e-mail.