The IRS “Dirty Dozen” – Tax Scams And Schemes

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The IRS “Dirty Dozen” – Tax Scams And Schemes

As previously published by Jason B. Freeman in Forbes.

Every year, the IRS releases its so-called “Dirty Dozen”—a list of scams that target taxpayers.  This year, perhaps as no surprise, the list emphasized schemes related to coronavirus tax relief, including Economic Impact Payments.  As the pandemic drags on, taxpayers and tax professionals would do well to familiarize themselves with the IRS’s list of the latest scams.

This year’s list includes—drum roll please—the following:

Phishing.

Phishing scams often involve fake emails claiming to be IRS personnel.  This year, many phishing scam emails are using keywords like “coronavirus,” “COVID-19,” and “Stimulus.”  The IRS warns taxpayers that it will never initiate contact with taxpayers via email about a tax bill, refund, or Economic Impact Payment.

Fake Charities.

The IRS warns that fake charity scams tend to rise during times of need.  The prevalence of charity scams will likely rise for the foreseeable future due to the current COVID-19 pandemic.  Taxpayers should be particularly skeptical of charities with names that are similar to or sound like nationally known organizations.  Taxpayers can check charity names on the IRS’s website here when in doubt.

Threatening Impersonator Phone Calls.

One common IRS impersonation scam involves phone calls impersonating IRS agents, threatening potential lawsuits, or threatening arrest.  Taxpayers should be aware that the IRS will never threaten a taxpayer or surprise him or her with a demand for immediate payment.

Social Media Scams.

Scammers are more and more frequently using social media to conduct a variety of scams.  So it is no surprise that social media scams have led to an increase in tax-related identity theft.  Scammers often obtain personal information and may initiate an email to a victim including a link that contains malware.  Taxpayers should be wary of odd-looking texts or unusual communications that appear to be from friends, family, or co-workers.

EIP or Refund Theft.

Refund fraud and theft continue to make the IRS’s annual list of the top tax scams.  This year, IRS criminal investigation turned their attention to scams or theft involving Economic Impact Payments.  These efforts are typically the result of identity theft, where scammers file false tax returns with the IRS in an effort to divert refunds to the incorrect address.

Senior Fraud.

Tax scams are often targeted at vulnerable victims, which includes seniors.  Seniors are more likely to be targeted by scammers than virtually any other group in society. This year, seniors have been particularly impacted by fishing scams linked to COVID-19.

Seniors and their loved ones should be particularly skeptical of emails, text messages, and social media attempts to steal personal information.

Scams targeting non-English speakers.

Scammers often target taxpayers with limited English proficiency.  This year, scams have particularly targeted taxpayers who received Economic Impact Payments.  Scammers often contact the taxpayer with a limited amount of their information, such as an address, the last four of their Social Security number, or other personal information, in an effort to make the phone calls appear legitimate.

Unscrupulous Return Preparers.

A tax preparer plays an important role and is entrusted with the taxpayer’s sensitive data.  The IRS warns that taxpayers should avoid so-called “ghost” preparers.  Ghost preparers do not actually sign the tax returns that they prepare. By law, anyone who is paid to prepare or assists in preparing federal tax returns is required to have a Preparer Tax Identification Number (PTIN).  Paid preparers are required to sign and include their PTIN on a tax return that they have prepared.

One frequent issue involves return preparers who promise inflated refunds through the use of improper tax credits, such as improper education credits or claiming the Earned Income Tax Credit (EITC).  These tax preparers generate business off the preparation of returns claiming an improper refund.  The IRS warns that taxpayers should avoid preparers who ask them to sign a blank return, promise large refund prior to looking at the taxpayer’s records, or charge fees that are tied to a percentage of the refund claimed.

Offer in Compromise Mills.

The IRS has warned taxpayers to be skeptical of tax debt resolution companies that make exaggerated claims about their ability to settle tax debts for “pennies on the dollar.” These tax debt resolution companies promote the use of Offers in Compromise (OIC) and often promise unrealistic outcomes and over-sell the OIC program to scam taxpayers out of fees. These tax scams, which target taxpayers who are already struggling with debt, are commonly referred to as OIC “mills.”

Fake Payments with Repayment Demands.

Under this new scam, criminals obtain a taxpayer’s personal data, such as a Social Security number and bank account information, and file a fake tax return to cause a refund to be deposited into the taxpayer’s checking account. The scammer then contacts the taxpayer, claiming to be an IRS employee. The scammers inform the taxpayer that the funds have been deposited in error and that they are required to be returned immediately. The scammers typically instruct the taxpayer to purchase gift cards for the amount of the refund.

The IRS warns taxpayers that it will never demand payment by a specific method. If a taxpayer receives an unexpected refund and a call from someone claiming to be with the IRS, they should contact their bank and the IRS.

Payroll and HR Scams.

Employers should be particularly on guard with respect to phishing schemes that are designed to steal W-2 and other employment information. The threat of these spoofing schemes is particularly prevalent in current times, when many businesses are closed and employees are working from home due to COVID-19.

The IRS warns that the most common schemes are the gift card scam and the direct deposit scam.  The gift card scam involves a fraudulent request to purchase gift cards by impersonating an internal email address. The direct deposit scheme involves a scammer impersonating the victim and seeking to have his or her employer change the victim’s direct deposit information in order to direct paycheck deposits into a fraudulent account.

Ransomware.

Ransomware threats are a growing cybercrime. Ransomware is malware that is used to infect a victim’s computer, internet network, or server.  Malware is often inadvertently downloaded, and once downloaded, it tracks computer activity—such as keystrokes. Ransomware searches for critical or sensitive data and locks that data through an encryption mechanism, ransoming the information to the end-user. Typically, victims are not aware that their systems have been compromised until they seek to access the locked data.  Ransomware cyber criminals typically demand payment in the form of virtual currency, such as bitcoin, in exchange for releasing the data back to the victim.

Taxpayers would be wise review the “Dirty Dozen” list, as the list describes common trends and scams identified by the IRS.