IRS Warns of Tax Season Scams – The Dirty Dozen List
The Internal Revenue Service (IRS) warned taxpayers by updating its annual Dirty Dozen tax scam list. Each year the IRS maintains and publishes a list of the tax scams, fraud, and schemes investigators encounter the most. The IRS’ Dirty Dozen is compiled annually and highlights the year’s most common taxpayer scams. As consumers catch on to the annual surge in money making schemes and heed consumer warnings, tax scams tend to evolve to increase their efficiency.
Tax scams can be anything from a phone call to a phishing email. No one is safe from scammers as they even go after large corporations and professional tax preparers. The best defense is to abide by tax laws and understand a little bit about how the IRS operates. It is important to remember that the IRS will never ask for payment over the phone. This is how many of the tax scams are successful. They use fear and intimidation to coerce a taxpayer into giving them a bank account number or credit card number during a phone call.
Although identity theft is down, the IRS warned that it is still prevalent enough to warn taxpayers about. Taxpayers need to protect their sensitive data like birthdate, payroll information, address, social security number, and bank account information. Scammers can use just a few pieces personal data like a name and social security number to file an erroneous tax return then have the refund directed to their own bank account.
Tax Related Identity Theft
Identity theft can begin through a variety of cyber attack vectors. Typical tax-related identity theft scams include email phishing as well as scam phone calls. As with other types of tax scams, these increase up during tax season.
Identity theft occurs when a criminal obtains someone else’s Social Security number or Individual Taxpayer Identification Number and uses it to file a bogus tax return. The thief uses figures that result in a tax refund.
Tax Return Preparer Fraud
Income tax return preparer fraud occurs when a tax preparer steals money from the tax filer or the IRS. The preparer inflates the filer’s income or deductions on a return then diverts the tax return funds to his own bank account. A scammer may also try to get a client to sign an incomplete return. With this type of fraud, the tax preparer may not actually be a registered income tax professional.
Legitimate tax preparers have an IRS Preparer Tax Identification Number (PTIN) and are required to register with the IRS. They must use sign all tax returns they work on with their PTIN. You can also check the tax preparer’s qualifications in the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. Your tax preparer may also be a certified public accountant or an attorney – asl for credentials. Legitimate preparers ask clients for income and expense records and receipts. They also ask questions to determine total income, deductions, and tax credits.
Professional tax preparers who file more than ten tax returns per year must file them electronically. Beware of the tax preparer who won’t sign a return or one who wants you to print it yourself and refuses to sign the return with you.
Phishing Tax Scams
With some phishing tax scams. taxpayers are victimized by a clever scheme that involves the fraudsters use of the victim’s own bank account. After stealing personal data and filing fraudulent tax returns, criminals use taxpayers’ bank accounts to direct deposit tax refunds. Thieves then use various tactics to convince the taxpayer to send the refund to them. The scammer may falsely claim to be from a collection agency or the IRS. The IRS encourages taxpayers to review some basic tips if they see an unexpected deposit in their bank account.
Taxpayers should contact the IRS for tax scams or Treasury-related fraudulent calls to phishing @ irs.gov. Never give out any information over the phone and hang up immediately.
Phone scams sometimes, called voice phishing, or “vishing,” are a popular tax scam vector that have extracted millions of dollars from unsuspecting taxpayers. Phone scammers call victims claiming to be IRS officials. They may spoof their caller ID number so that it appears that the call is originating from an IRS office. The scammers use threats and intimidation to demand that a victim pay a nonexistent tax bill during the phone call. The scammers take payment through a wire transfer, a debit card, or a gift card.
Taxpayers should understand that the IRS never demands payment during a phone call. The IRS sends payment notices via regular postal mail. The IRS also never accepts prepaid debit cards, gift cards, or wire transfers over the phone. The IRS will always give taxpayers the chance to question or appeal the amount owed.
Falsifying Income, Creating Bogus Tax Documents
In this scam, criminals convince taxpayers into claiming tax credits they aren’t entitled to. Income is inflated so taxpayers can claim tax credits they aren’t qualified for. Like falsely claiming an expense or deduction, claiming income that was never earned is illegal.
Fake Forms 1099-MISC
This scam invoices the taxpayer filing a Form 1099-MISC claiming Miscellaneous Income for money they never earned, or other financial instruments such as bonds, bonded promissory notes or worthless checks. This can also be part of a scam disguised as debt payment for credit cards or mortgage debt. Scammers fool taxpayers into thinking there is a government “held-aside” account and the only way to draw money from it is through a fake made-up financial instrument. The taxpayer believes this helps with debt payment method for credit cards or mortgage debt.
Scammers also claim refunds using fake Form 1099s to file for a refund. Some convince victims there is are secret government bank accounts and that taxpayers can get money by using a 1099-OID Form.
Direct Deposit Scam
Direct deposit scams are also called business email compromise (BEC) or business email spoofing (BES) scams. This is a more advanced scam that targets corporate human resource employees. This phishing scheme attempts to acquire employee W-2 tax forms en masse. When successful, the scammer acquires an entire company’s wage information on all of its employees. This data includes W-2s, names, addresses, and Social Security numbers.
There are several variations of the scam. Scammers may also pose as businesses asking the company to pay a fake invoice, as an employee seeking to re-route a direct deposit, or anyone else the victim recognizes. The goal is to get the company to initiate a wire transfer so bank account information can be acquired.
Inflated Tax Refunds
Scammers prey on older taxpayers, low-income taxpayers, or anyone who does not have a filing requirement because they do not make much money. These scammers may appear in person rather than hide behind a phishing email or phone scam. They may even make presentations through community groups or churches. The goal of the inflated tax return scam is to trick the victim into filing a tax return with fictitious rebates, benefits, or tax credits. A scammer may also commit identity theft and file a false return in their client’s name and claim a refund. The return may claim education credits or the Earned Income Tax Credit.
Michelle writes about cyber security as well as how to protect your data online. She has worked in internet technology for over 20 years Michelle earned a B.S. in Engineering from Rensselaer Polytechnic Institute. She published a guide to Cyber Security for Business Travelers