Every year the Internal Revenue Service (IRS) releases its list of the top tax scams called the "Dirty Dozen." As you would expect, this year's scams are related to the Coronavirus pandemic and Economic Impact Payments.
"Tax scams tend to rise during tax season or during time of crisis, and scam artists are using (the Coronavirus) pandemic to try stealing money and information from honest taxpayers," said IRS Commissioner Chuck Rettig.
Before going into the list of the Dirty Dozen, it should be known that the IRS will not initiate contact with a taxpayer by phone or email about a tax bill or refund. You will always receive either a notice or letter from the IRS informing you of any problems with your tax return.
The 2020 Dirty Dozen
This is exactly how it sounds. These schemes involve an email or phone call to a large number of people to see which ones will take the "bait." If you do receive one of these emails, do not click on the links claiming to take you to the IRS website. They may be nothing more than a way to steal personal information.
2. Fake Charities
Scammers frequently exploit natural disasters and other situations such as the current Coronavirus pandemic. These schemes usually set up fake charities to steal from well-intentioned people wanting to help. These scams usually start with unsolicited contact by phone, email, text, or even in person. They will set up bogus websites and use names that are similar to legitimate charities to trick people into "donating" money or to steal their personal financial information.
3. Threatening Impersonator Phone Calls
The common form of impersonation is a criminal claiming to be with the IRS. The criminal attempts to instill fear and urgency into the potential victim. These calls often are done through robocalls (a text-to-speech recorded message with instructions to return the phone call.) The IRS will never threaten a taxpayer or surprise them with a demand for immediate payment. People should contact the real IRS if they suspect they may have some form of a tax problem.
4. Social Media Scams
We share a lot of information on social media. Scammers use that information to conduct a wide variety of acts. These can include emails where they impersonate someone's family, friends, or co-workers. The basic part of the scam is to convince the potential victim that they are dealing with someone close to them through email, text, or social messaging. A scammer may email a potential victim and include a link to something of interest which contains malware. This malware goes into the victim's email and cell phone contacts to send out more messages. These messages appear to be real and will usually solicit for small donations to fake charities that may be appealing to the new victims.
5. Economic Impact Payment or Refund Theft
Even though the IRS has made strides against refund fraud and theft over the years, this is still an ongoing problem. This form of fraud is especially prevalent this year with scammers taking advantage of various Economic Impact Payments provided by the Coronavirus Aid, Relief, and Economic Securities (CARES) Act." The criminal, through identity theft, files false tax returns or supplies other information to the IRS to divert the refund or Economic Impact Payment to a wrong address or bank account
6. Senior Fraud
Seniors are more likely to be targeted and victimized by scammers than any other segment of society. Financial abuse of seniors is done through personal and professional relationships. Elder fraud appears to be reduced when a trusted friend or family member takes an interest in the senior's affairs.
7. Scams Targeting Non-English Speakers
Scammers are also targeting groups with limited English proficiency and often threaten them. A common scam is someone claiming to be with the IRS who threatens jail time, deportation, or revocation of a driver's license. These scams also target those that may be receiving an Economic Impact Payment and the scammer will request personal and financial information from the victim.
8. Unscrupulous Tax Return Preparers
Selecting the right tax return preparer is important as the preparer is entrusted with your most sensitive person information. "However, every year, there are dishonest preparers that show up to commit fraud and expose victims to potentially serious filing mistakes and possible penalties.
Fraudulent preparers will not sign the tax returns they prepare. They promise refunds by taking credits the taxpayer is ineligible to claim. People should avoid preparers who ask them to sign a blank return, promise big refunds before looking at the records, or charge a fee based on a percentage of the refund.
You are ultimately responsible for the accuracy of your tax return, regardless of who prepares it. With many tax professionals potentially having their office locations closed due to COVID-19, be especially careful to select a credible tax preparer.
9. Offer in Compromise Mills
If you have a debt that is owed to the IRS, be wary of tax resolution companies that promise to settle that debt for "pennies on the dollar" through an Offer in Compromise (OIC.) These scams are commonly called Offer in Compromise Mills, which charge a high fee and churn out applications for a program that the taxpayer may not qualify. Although the Offer in Compromise program does help thousands of taxpayers each year, not everyone qualifies for the Offer in Compromise. In 2019, there were 54,000 Offer in Compromise applications submitted to the IRS. The agency accepted only 18,000 of them.
10. Fake Payments with Repayment Demands
A scammer may steal or obtain personal information including your social security number and bank information and then file a fraudulent tax return using your information. The scammer has the refund deposited into your account, then calls you, posing as an IRS agent. They'll tell you that an error occurred and that if the money isn't sent back immediately, there will be penalties and interest. To return the bogus refund, they'll instruct you to buy specific gift cards in the amount of the refund. The IRS will never demand payment in a specific manner- definitely not by gift card. If you receive an unexpected refund and a subsequent call demanding repayment, reach out to your financial institution and the IRS.
11. Payroll and HR Scams
Tax professionals, employers, and taxpayers should be aware of scams designed to steal Form W-2's and/or other tax information. Scammers may impersonate the potential victim to have their direct deposit account information changed to an account the scammer controls. These scams use a variety of methods including requests for wire transfers or payment of fake invoices.
This is a growing cybercrime. Ransomware is a form of malware that targets both human and technical weaknesses. The criminal will usually use a phishing scam to infect the victim's computer, network, or server. Once downloaded, the malware searches for and locks critical and sensitive data with its encryption. In some cases, entire computer networks can be adversely impacted.
Victims generally are not aware of the attack on their system until they try to access the data, or they may receive a popup window requesting a ransom to unlock the data and/or computer. The cybercriminal does not want to be traced so they use anonymous messaging platforms and demand payment in virtual currency such as Bitcoin.
The IRS puts together their annual Dirty Dozen List to urge tax-paying citizens to be aware of serious scams they may not know about. They encourage citizens to be vigilant of these scams during the COVID-19 pandemic and beyond. If you feel that you have fallen victim to any of these tax scams, you should contact the proper authorities immediately. At ADKF, our Department of Tax Controversy offers a variety of services to help combat any of the tax scams mentioned here. If you have any questions about the IRS's Dirty Dozen List, please don't hesitate to reach out.