List of “Dirty Dozen” Tax Scams
Tax scams tend to rise during tax season or during times of crisis, and scam artists are using pandemic to try stealing money and information from honest taxpayers.
Taxpayers are encouraged to refrain from engaging potential scammers online or on the phone.
Here are the year’s “Dirty Dozen” scams:
- Phishing: Taxpayers should be alert to fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a refund, Economic Impact Payment or tax bill.
- Fake Charities: Criminals frequently exploit natural disasters and other situations such as the current COVID-19 pandemic by setting up fake charities. Legitimate charities will provide their (EIN) Employer Identification Number when requested to verify their legitimacy.
- Threatening Impersonator Phone Calls: Impersonator calls comes in many forms. A common one remains, a bogus criminal claiming to be with the IRS. The scammer attempts to instill fear and urgency in the potential victim. The IRS will never threaten a taxpayer or surprise him or her with a demand for immediate payment.
- Social Media Scams: Taxpayers need to protect themselves against social media scams, which frequently use events like COVID-19 to try tricking people. Social media enables anyone to share information with anyone else on the Internet. Scammers use this information as ammunition for a wide variety of scams. The basic element is convincing a potential victim that he or she is dealing with a person close to them.
- EIP or Refund Theft: Criminals this year have turned their attention to stealing Economic Impact Payments as provided by the (CARES) Act. The IRS recently warned nursing homes and other care facilities that Economic Impact Payments generally belong to the recipients, not the organizations providing the care.
- Senior Fraud: Seniors are more likely to be targeted and victimized by scammers than any other segment of society. Financial abuse of seniors is a problem among personal and professional relationships. Older Americans are becoming more comfortable with evolving technologies, such as social media. Unfortunately, that gives scammers another means of taking advantage. Seniors need to be alert for a continuing surge of fake emails, text messages, websites and social media attempts to steal personal information.
- Unscrupulous Return Preparers: Most tax professionals provide honest, high quality service, but dishonest preparers pop up every filing season, committing fraud, harming innocent taxpayers or talking taxpayers into doing illegal things that they regret later. Taxpayers should avoid “ghost” preparers who expose their clients to potentially serious mistakes as well as possible tax fraud and risk of losing their refund. Ghost preparers don’t sign the tax returns they prepare.
- Offer in Compromise Mills: Taxpayers need to be weary of misleading tax debt resolution companies that can exaggerate chances to settle tax debt for “pennies on the dollar” through an Offer in Compromise (OIC). In 2019, there were 54,000 OIC’s submitted to the IRS. The agency accepted 18,000 of them. These offers are available for taxpayers who meet very specific criteria under law to qualify for reducing their tax bill. Unscrupulous companies oversell the program to unqualified candidates so they can collect a hefty fee from taxpayers already struggling with debt.
- Scams Targeting Non-English Speakers: IRS impersonators and other scammers also target groups with limited English proficiency. These scams are often threatening in nature. Phone scams pose a major threat to people with limited access to information, including individuals not entirely comfortable with the English language. A common one remains the IRS impersonation scam where a taxpayer receives a phone call threating jail time, deportation or revocation of a driver’s license from someone claiming to be with the IRS.
- Fake Payments with Repayment Demands: A con artist steals or obtains a taxpayer’s personal data including Social Security Number or Individual Taxpayer Identification Number (ITIN) and bank account information. The scammer 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 taxpayer is told that the refund was deposited in error and the IRS needs the money returned immediately or penalties and interest will result. The taxpayer is told to buy specific gift cards for the amount of the refund. The IRS will never demand payment by a specific method. There are many payment options available. Taxpayers should reach out to their banking institution and to the IRS.
- Payroll and HR Scams: Employers, taxpayers and tax professionals need to be on guard against phishing designed to steal W-2s and other tax information. Two of the most common type of these scams are the gift card scam (a compromised email account is used to send request to purchase gift cards in various denominations) and the direct deposit scam (the fraudster may have access to the victims email account (also known as email account compromise “EIC”). They 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: This is a growing cybercrime. Ransomware is malware targeting human and technical weakness 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 infected, ransomware looks for and locks critical or sensitive data with its own encryption. Generally victims aren’t aware until they try to access their data or they receive a ransom request in the form of a pop-up window. These criminals do not want to be traced so they frequently use anonymous messaging platforms and demand payment in virtual currency such as Bitcoin.