IRS Unveils New “Dirty Dozen” Tax Scams
Coronavirus Pandemic Leading to Increased Fraud
Tax fraud and tax identity theft usually peak each year during tax season. In 2020, the circumstances for fraud have never been higher. A longer than usual tax season combined with the coronavirus pandemic has created a perfect storm for taxpayers trying to protect their financial information and make sense of mountains of changing guidelines and regulations. The IRS releases its Dirty Dozen tax scams to help taxpayers – individuals and businesses alike – stay vigilant to the ever-changing fraud threats.
This summer, the worst tax scams include an alarming number of frauds perpetrated in response to coronavirus. Mainstay scams like phishing and ransomware are joined with newcomers using social media, fake charities, and promises of debt repayment to lure unsuspecting taxpayers into giving up confidential information, money, or both.
Another surprising fact about tax scams: they’re not just for senior citizens. Taxpayers of all ages and income levels need to be aware of potential fraud, but interestingly enough, young taxpayers between the ages of 20 and 29 are often the most susceptible.
Below are the top 12 worst tax scams of summer 2020.
Fraudsters now go to great lengths to make fake emails look real. When it comes to the IRS, they never send initial communications via email, whether it’s a tax bill or an audit notice. It will always be through the mail. If you get an email claiming to be from the IRS, Department of the Treasury, or anything that seems unusual, don’t click on any links. Phishing scams can also extend to text messages, too – so be wary.
Scammers this summer are trying to capitalize on the pandemic by playing on peoples’ fears and the unknown, so be extra cautious if you receive a strange email mentioning coronavirus, COVID-19, or stimulus.
Be aware of Business Email Compromise scams, using real coworkers’ names and email addresses to steal company information.
2. Fake Charities
There are many official, verified ways to donate to charitable organizations during a crisis. There are also fake charities hoping to exploit unaware taxpayers. As with other crises, coronavirus has led to an increase in fake charities, with organizations claiming to help those affected by the pandemic. Once a well-intentioned taxpayer sends money, the scammer has access to bank account information, email, and other personal information. You can vet charities using this link on the IRS website and by searching the charity name on Charity Navigator.
3. Impostor Phone Calls
The traditional form of scammer phone calls is threatening in nature: the scammer pushes the taxpayer into providing information or immediate payment to avoid jail time or more fees. Voice phishing, or vishing, is a particularly threatening scam. These are usually robocalls with instructions on returning the call if the taxpayer wants to avoid arrest or getting their driver’s license revoked.
We can’t say it often enough: the IRS will never demand immediate payment or make threats, nor will they call about an unexpected refund or payment. Official correspondence from the IRS will always come in the mail. If there are questions, contact the IRS directly or your Adams Brown representative.
4. Social Media Scams
Being careful not to share too much personal information on social media is good advice at any time. During a public health crisis, it is even more important to protect personal and financial information shared via social media and other websites. Scammers are using information from social media profiles to assemble fake identities of someone’s family, friends, or coworkers and use that information to push out malware, phishing scams, and identity theft. Be very careful before clicking on ads or questionable websites, don’t give money to an unverified charity, or give up personal information in any social media setting.
5. CARES Act Stimulus Check Refund Theft
Scammers are known to try to take advantage of a crisis to gain access to taxpayers’ information. The coronavirus pandemic is responsible for a surge in fraudulent activity, and one of the biggest areas concerns the theft of Economic Impact Payments, or stimulus checks. This type of fraud is interlinked to tax identity theft because the scammer usually has to have access to a taxpayer’s information to steal the refund due from the CARES Act. If you were entitled to a stimulus check from the CARES Act but didn’t receive it yet, contact the IRS or your tax preparer at Adams Brown.
Another form of stimulus check fraud is happening at some nursing homes. When refunds were sent to nursing home residents, some unscrupulous nursing homes were keeping the residents’ payments.
6. Senior Citizen Fraud
Financial fraud targeting senior citizens is a form of elder abuse and is watched carefully by the IRS, FBI, and other federal agencies. In normal times, senior citizens are targeted by phone call scams where they’re asked to give up personal financial information or send money to a relative “in trouble.” This year, phishing scams targeting senior citizens are rampant, as fake claims related to coronavirus are everywhere. Coronavirus scams can happen on the phone, through email, social media, text messages, websites, and social media. Stay alert and never give out information.
7. ESL/Immigrant Scams
Scammers targeting non-English speakers will use threats of deportation, jail time, or revoking a driver’s license to get what they want. Usually, these scams are phone calls and may sound legitimate because the scammer has other information about the individual, like their address or other personal data. If you or someone you know are a recent immigrant, be aware of these scams and remember that the IRS will never demand anything or make threats, to anyone.
8. Ghost Tax Preparers
As a CPA firm, we take great pride in providing accurate, attentive client service. Most firms do. But not all tax preparers are trustworthy. Red flags to watch out for are when the tax preparer doesn’t have a preparer tax ID number, they don’t sign the returns whether they are paper or electronic; they make promises or guarantees; claim inflated or false tax credits or deductions; or charge a fee based on a percentage of the refund.
Although most tax preparers are honest, make sure to vet anyone who will be handling your personal financial data. Ultimately, taxpayers are still responsible for anything on their return, whether they worked with a ghost tax preparer or not.
9. Debt Resolution Fraud
Paying off debt the responsible way is a great thing. Beware of any company or individual claiming to settle tax debt for “pennies on the dollar.” These types of scams are known as offers in compromise and come with a lot of hidden fees.
Instead, if you owe money to the IRS, work with the agency on a repayment plan. You can also submit official offers in compromise to the IRS, but many taxpayers don’t qualify. There is a free online pre-qualifier tool on the IRS website where you can check eligibility. If you’re unsure, talk to your tax preparer at Adams Brown.
10. Fake Payments with Repayment Demands
This type of scam is a two-for-one. Not only does the scammer gain access to the taxpayer’s social security number or individual taxpayer identification number (ITIN) and bank account, but then also files a bogus tax return with a refund. Once the fraudulent refund is deposited, the scammer contacts the taxpayer pretending to be the IRS and demands the refund be returned … in the amount of gift cards.
Taxpayer identification fraud relies on taxpayers waiting until the last minute to file their returns. If scammers can file early, before the taxpayer, they have a much greater chance of succeeding with their fraud. And remember that the IRS will never demand the taxpayer do anything; if payments are owed, the IRS will work out a payment plan. It will also never demand information over the phone or in an email.
11. Payroll and HR Scams
This type of fraud starts with a phishing scam and then targets W-2 data and other tax information. Payroll scams are on the rise as nearly every company implemented a work-from-home protocol but didn’t have the right information security processes in place to protect company data. The IRS reports that the two most common types of payroll scams right now are gift card scams and direct deposit scams.
Beware that fraudsters can pose as actual employees once they gain access to the system. When this happens, they can request to reroute direct deposits or ask for access to various types of sensitive employee files.
Malware that targets human and/or technical weaknesses via computers, networks, or servers are growing. Fraud happens when a user unknowingly downloads infected software, which then targets anything from passwords to stored financial data. Entire networks can be taken down with malware and fraudsters can hold companies’ networks for ransom. In a situation like this, not only is the victim’s data compromised, but anyone else’s stored on the system too – like customers or clients.
Ransomware usually starts with a phishing scam where someone clicks on a link they shouldn’t have. Knowledge and awareness are the best prevention, in addition to multi-factor authentication.
Scammers are becoming increasingly sophisticated with their attempts to impersonate real people and organizations. They know how to play off taxpayers’ fears and uncertainties to get what they want. It’s more important than ever to remain cautious and vigilant. Don’t feel pressured to give up any information until you can verify whether the request is legitimate.
Whether you’re concerned about personal or business fraud, Adams Brown is here to answer your questions and help you work with the real IRS. Companies should also consider whether their internal controls are effective enough to withstand increased fraudulent attacks, especially in light of Paycheck Protection Program funding. Contact us for an assessment.