Although the tax scam list has varied little in recent years, this year is markedly different, with several scams relating to the COVID-19 pandemic. Below is the rundown for 2020. This list is courtesy of the Accounting Web.
Taxpayers should be alert to potential fake emails or websites looking to steal personal information. Remember that the IRS will never initiate contact with taxpayers via email about a tax bill, refund, or Economic Impact Payment (EIP). Don't click on links claiming to be from the IRS.
IRS Criminal Investigation has seen a tremendous increase in phishing schemes utilizing emails, letters, texts, and links. Typically, they use keywords like “coronavirus,” “COVID-19” and “Stimulus” in various ways. Most of these new schemes actively play on the fear and unknown of the virus and EIPs.
2. Fake Charities
Frequently, criminals exploit natural disasters and other situations, such as the current COVID-19 pandemic, by setting up fake charities. These schemes normally start with unsolicited contact by telephone, text, social media, e-mail, or in-person using various tactics.
Bogus websites use names similar to legitimate charities to trick people into sending money or providing personal financial information. Fraudsters may even claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds.
Taxpayers should be particularly wary of charities with names like nationally known organizations. Legitimate charities will provide their Employer Identification Number (EIN) if requested, which can be used to verify their legitimacy. You can find legitimate and qualified charities with the search tool on www.irs.gov.
3. Threatening Impersonator Phone Calls
IRS impersonation scams come in many forms. A common example is a criminal claiming to be with the IRS makes a threatening phone call and attempts to instill fear and urgency in the potential victim. The IRS will never threaten a taxpayer or surprise them with a demand for immediate payment.
Phone scams or "vishing" (voice phishing) pose a major threat. Scam phone calls— including those threatening arrest, deportation or license revocation if the victim doesn't pay a bogus tax bill— are reported year-round. These calls often are “robocalls” (text-to-speech recorded messages with instructions for returning the call).
4. Social Media Scams
Taxpayers should protect themselves against social media scams, which frequently use events like COVID-19 to trick people. Social media enables anyone to share information with anyone else on the Internet.
Scammers use that information as ammunition for a wide variety of scams. These include emails where scammers impersonate someone's family, friends, or co-workers.
Social media scams have also led to tax-related ID theft. The basic idea is to try to convince a potential victim that they are dealing with a person close to them that they trust via email, text, or social media messaging. Using personal information, a scammer may email a victim with a link on something of interest to the recipient that contains malware intended to commit more crimes.
5. EIP or Refund Theft
The IRS has made great strides against refund fraud and theft lately, but they remain an ongoing threat. Criminals this year also turned their attention to stealing EIPs provided under the Coronavirus Aid, Relief and Economic Security (CARES) Act.
Much of this stems from identity theft whereby criminals file false tax returns or supply other bogus information to the IRS to divert refunds to wrong addresses or bank accounts. For instance, the IRS recently warned nursing homes and other care facilities that EIPs generally belong to the recipients, not the organizations providing the care.
6. Senior Fraud
Seniors are more likely to be targeted and victimized by scammers than other segments of society. Anecdotal evidence indicates that elder fraud goes down substantially when the service provider knows a trusted friend or family member is taking an interest in the senior's affairs.
Older Americans are becoming more comfortable with evolving technologies, such as social media. Unfortunately, this gives scammers another weapon. Phishing scams linked to COVID-19 have been a major threat this filing season. Seniors must be alert for a continuing surge of fake emails, text messages, websites, and social media attempts to steal personal information.
7. Scams Targeting Non-English Speakers
Phone scams pose a major threat to people with limited access to information, including individuals not entirely comfortable with the English language. These calls frequently take the form of a robocall but are sometimes made by a real person.
Con artists may have some of the taxpayer's information, including their address, the last four digits of their Social Security number or other personal details, making the phone calls seem legitimate. This includes the common impersonation scam where a taxpayer receives a telephone call threatening jail time, deportation or revocation of a driver's license from someone claiming to be with the IRS. Taxpayers who are recent immigrants often are the most vulnerable and should ignore these threats.
8. Unscrupulous Return Preparers
Most tax professionals provide an honest, high-quality service, but dishonest preparers pop up every filing season committing fraud, harming innocent taxpayers or talking taxpayers into doing illegal things they later regret. Taxpayers should avoid so-called "ghost" preparers who expose their clients to potentially serious filing mistakes as well as possible tax fraud and risk of losing their refunds.
Ghost preparers don't sign the tax returns they prepare. They may print the tax return and tell the taxpayer to sign and mail it to the IRS. For e-filed returns, the ghost preparer will prepare the return, but not digitally sign as the paid preparer.
Unscrupulous preparers may also promise funds by claiming fake tax credits, including education credits, the Earned Income Tax Credit (EITC), and others. Taxpayers should avoid preparers who ask them to sign a blank return, promise a big refund before examining the taxpayer's records or charge fees based on a percentage of the refund.
9. Offer in Compromise Mills
Be wary of misleading tax debt resolution companies that can exaggerate chances to settle tax debts for "pennies on the dollar" through an Offer in Compromise (OIC). These offers are available for taxpayers who meet very specific criteria under the law to qualify for reducing their tax bill.
But unscrupulous companies oversell the program to unqualified candidates so they can collect a hefty fee from taxpayers already struggling with debt. These scams are commonly called OIC mills.
They cast a wide net for taxpayers, charge them pricey fees and churn out applications for a program they're unlikely to qualify for. Although the OIC program helps thousands of taxpayers each year to reduce their tax debt, not everyone qualifies. In Fiscal Year 2019 (FY2019), the IRS accepted only 18,000 of the 54,000 OICs submitted by taxpayers.
10. Fake Payments With Repayment Demands
Criminals are always finding new ways to trick taxpayers into believing their scam, including putting a bogus refund into the taxpayer's actual bank account. How it works: A con artist steals or obtains a taxpayer's data and bank account information. The scammer then files a bogus tax return and has the refund deposited into the taxpayer's checking or savings account.
Once the direct deposit hits the taxpayer's bank account, the fraudster places a call to them, posing as an IRS employee. The caller says that there's been an error and that the IRS needs the money returned immediately or penalties and interest will result. The taxpayer is then told to buy specific gift cards for the amount of the refund.
11. Payroll and HR Scams
Tax professionals, employers, and taxpayers need to be on guard against phishing designed to steal Form W-2s and other tax information, called Business Email Compromise (BEC) or Business Email Spoofing (BES). This is particularly true with many businesses closed and their employees working from home due to COVID-19. Currently, two common types of these scams are the gift card scam and the direct deposit scam.
In the gift card scam, a compromised email account is often used to send a request to purchase gift cards in various denominations. With the direct deposit scheme, the fraudster may have access to the victim's email account. They may also impersonate the potential victim to have the organization change the employee's direct deposit information to reroute their deposit to an account the fraudster controls.
Ransomware is malware targeting human and technical weaknesses to infect a potential victim's computer, network, or server. Malware is a form of invasive software that is often frequently inadvertently downloaded by the user.
Once it’s downloaded, it tracks keystrokes and other computer activity. It looks for and locks critical or sensitive data with its encryption. In some cases, entire computer networks can be adversely affected.
Victims generally aren't aware of the attack until they try to access their data or they receive a ransom request in the form of a pop-up window. The criminals don't want to be traced so they frequently use anonymous messaging platforms and demand payment in virtual currency such as Bitcoin.
Caution your accounting clients to stay vigilant against these 12 scams on the IRS Dirty Dozen list.