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Tax Scams: What You Need to Know About the Latest Schemes

January 23rd, 2018 · No Comments · Consumer Info, Taxes

by Kristy Welsh

(Last Updated On: January 24, 2018)

Tax Scams: What You Need to Know About the Latest SchemesWhat if you filed your tax return only to discover that it had already been filed? Since filing your taxes isn’t something you’re likely to have forgotten doing, it’s safe to say someone else filed your tax return in your name and had your refund sent to them. This is just one of many tax scams you need to know about. We’ve compiled a comprehensive list of them based on the most recent IRS tax scam alerts. The goal? To protect your money, of course, but also to protect the sensitive information that fraudsters could use to commit identity theft against you for years to come, and leave you in desperate need of credit repair. Take a look at how the latest tax schemes work, how to protect yourself, and what to do if you are targeted by one of these scams.

Posing as IRS representative via phone

If you get a phone call from someone saying they are an IRS representative seeking payment, chances are good they’re lying. That’s because the IRS sends tax bills via regular mail through the U.S. Postal Service. Phone calls are rare and, even if they do call you for some legitimate reason, the IRS would not demand that you provide immediate payment or sensitive personal information over the phone. Plus, you would probably have received multiple letters in the mail first, so a phone call from the IRS should not come out of the blue.

How the scam works

They:

  • Do their homework on you, compiling enough information to convince you of their legitimacy
  • Manipulate caller ID so that it appears you are, indeed, receiving a call from the IRS
  • Use a fake name and ID badge number
  • Demand immediate payment of your supposed tax bill (including the bogus Federal Student Tax, which is not a thing) with no opportunity to appeal
  • Say that you must pay by prepaid card, gift card (like iTunes), or wire transfer
  • Use hostile and insulting language with you
  • Threaten you with arrest, or deportation, or the suspension of your business or driver’s license

On the flip side of this scenario, fraudsters may say that the IRS actually owes you money in the form of a tax refund. In order to process the refund, they say you need only verify personally-identifying information that they provide to you. Again, they do their homework, so they may have enough detailed info to convince you that they are, indeed, the IRS.

In either case, should you not answer the phone call, these fraudsters may leave a message urging you to call them back to deal with the “urgent” matter.

Note, it may not be a live person calling you. Some tax scams involve robocalls – automated messages stating you owe money and must call back immediately to take care of it or risk legal action.

Posing as IRS representative (or tax preparer) via email or text

While there is an off-chance that a real IRS agent could call you, there is zero chance of you receiving an email or text from them. That’s because the IRS never contacts taxpayers via either of these methods. So, if you do receive an unsolicited email or text from someone claiming to be an IRS representative, you can be certain it is a scam.

Unfortunately, there is no such clear-cut deciphering if they send an email or text posing as your tax preparer, so beware.

How the scam works

They:

  • Make their emails and texts to you seem as legitimate as possible (e.g., using the IRS logo)
  • Request information from you (e.g., updating your IRS e-file)
  • Include links in these emails or texts that direct you to an official-looking website that is actually a mirror site of the actual IRS site
  • Steal the requested information that you input into this mirror site
  • Infect your computer with malware

Examples of specific email scams:

Hotmail scam. The subject lines reads, “Internal Revenue Service Email No. XXXX | We’re processing your request soon | TXXXXXX-XXXXXXXX.” Inside the email, you are directed to a fake Microsoft page that asks for personal information.

IRS/FBI ransomware scam. Emails include both the IRS and FBI emblems. You are instructed to click a link to download an FBI questionnaire – a questionnaire that is fake. Clicking the link installs malware onto your computer, only instead of stealing your information or spying on your keystrokes, it locks your computer and demands you pay a ransom to release it (a ransom that the IRS says you should not pay).

Tax preparer/tax software company scam. Emails say they are from your tax professional or tax software company requesting more information needed to file your taxes. If you provide this information, it can be used to file fraudulent tax returns.

Posing as company executive requesting W-2 forms from payroll or human resources

If someone gets their hands on your W-2, they could file a fraudulent tax return in your name, as it contains everything necessary to do so – your name, address, social security number, income, and withholding information. Then instead of the refund going to you, the fraudster has it sent to them. Thus, the devastating implications of a tax scam in which fraudsters get their hands on the W-2 forms of an organization’s entire workforce.

How the scam works

Form W-2 tax scam fraudsters:

  • Get the names of people in positions of authority at companies, non-profits, schools, hospitals, etc.
  • Use business email compromise (BEC) or business email spoofing (BES) to send emails posing as these people in positions of power
  • Send these emails to people in payroll or human resources
    • First it may be an email just saying hello, to establish contact
    • Then it may be a follow-up email asking for the W-2 forms of every employee
  • After receiving the W-2 forms, may follow-up with a request for a wire transfer
  • File the fraudulent tax return (or sell the information for other fraudsters to do so)

What’s worse is, the IRS says it may be days, weeks, or even months before such a scam is detected.

Posing as Taxpayer Advocacy Panel member

The Taxpayer Advocacy Panel (TAP) is a volunteer board that advises the IRS on various issues. The advisory role of these volunteers does not include any access to taxpayer information. So, if you receive an email from someone claiming to be a representative of the panel – someone who says you have a tax refund coming to you – you can be certain it is a scam.

How the scam works

Fraudsters posing as members of the Taxpayer Advocacy Panel may:

  • Send you an email stating that you have a tax refund coming to you
  • Ask you to provide them with the information necessary for you to receive the refund
  • Use the information provided to commit fraud against you

Scams targeting tax professionals

Posing as e-Services representative

e-Services is a set of online tools that tax professionals use to complete their transactions with the IRS – tools only available to tax professionals who have been approved by the IRS to use them. Unfortunately, fraudsters exploit this relationship in the form of a phishing scam.

How the scam works

e-Services tax scam fraudsters:

  • Send an email posing as a representative of e-Services
  • State in the email that the tax professional needs to sign a new user agreement
  • Warn the recipient that if they do not sign the agreement, they will lose access to e-Services
  • Direct the tax professional to a fake site where they are asked for information
  • Steal passwords and data they can use to commit tax fraud

A variation on this scam is one in which the fraudsters – again, posing as e-Services reps – ask tax pros to update e-Services portal information and Electronic Filing Identification Numbers (EFINs). They are instructed to click on an included link to update this information; they are taken to a fake site that is used to steal their username and password.

Posing as software providers

Tax professionals depend on tax preparation software; without it, they cannot do their jobs. Thus, the effectiveness of a scam that tells tax pros that access to their tax software is locked.

How the scam works

Software provider tax scam fraudsters:

  • Send an email posing as a representative of a tax preparation software company
  • State in the email that the tax pro’s access to the software has been locked “due to errors in your security details”
  • Instruct them to click on an “unlock” link included in the email
  • Take them to a fake website where they are asked for their username and password
  • Use their username and password to access the tax pro’s client information

A variation on this scam is one in which fraudsters send emails – again, posing as tax prep software representatives – saying the recipients need to click a link to download a software update. Only, instead of an update, it is actually malware that tracks keystrokes.

Posing as potential client

While tax professionals may get new clients from walk-ins or phone calls, they also rely on email. Unfortunately, fraudsters take advantage of this, posing as potential clients so as to infiltrate the tax professional’s computer system.

Potential client tax scam fraudsters send bogus emails to tax preparers. Examples include:

  • “Happy new year to you and yours. I want you to help us file our tax return this year as our previous CPA/account passed away in October. How much will this cost us?…hope to hear from you soon.”
  • “Please kindly look into this issue, A friend of mine introduced you to me, regarding the job you did for him on his 2017 tax. I tried to reach you by phone earlier today but it was not connecting, attach is my information needed for my tax to be filed if you need any more Details please feel free to contact me as soon as possible and also send me your direct Tel-number to rich (sic) you on.”
  • “I got your details from the directory. I would like you to help me process my tax. Please get back to me asap so I can forward my details.”

If the tax professional responds, a second email follows with a link or attachment that the fraudster says contains their tax info. That’s a lie, of course, instead installing malware on their computer that can be used to access data or take over control of the computer.

Posing as existing client

This is a last-minute tax scam that tax professionals need to be on the lookout for the closer it gets to the April tax-filing deadline.

How the scam works

They:

  • Send emails to tax preparers that claim to be from clients
  • Request in these emails a change to how the client’s refund will be received
  • Count on the tax preparer making the change without a follow-up phone call to confirm
  • The fraudster receives the refund, not you

What you need to know about the IRS

The IRS will NOT:

  • Contact you by phone without sending you notices in the mail first
  • Communicate with you via email or text
  • Demand that you make immediate payment over the phone
  • Demand that you make payment without giving you an opportunity to appeal
  • Ask you to share debit or credit card numbers over the phone
  • Insist that you make a payment via prepaid card, gift card, or wire transfer
  • Threaten to have you arrested or deported, or to have your business or driver’s license suspended or revoked

How to protect yourself

For individuals

Don’t open links in suspicious-looking emails or texts.

Don’t just pay an unexpected tax bill; call the IRS to verify the debt using the phone number listed on the official IRS website.

Even if you know that you owe the IRS money, don’t assume that a call, email, or text you receive from someone saying they’re from the IRS is legitimate. Again, call the IRS using the number listed on the official IRS website.

Keep in mind that fraudsters may try and scam you via regular mail, too. So if you receive an unexpected or suspicious-looking letter, call the IRS to confirm it’s legitimacy: 1-800-829-1040.

If your computer is infected with ransomware, don’t pay it. There is no guarantee they will unlock your computer as promised.

Familiarize yourself with what your tax professional should be doing to protect against fraud.

For tax professionals

The IRS recommends that tax professionals familiarize themselves with Publication 4557, Safeguarding Taxpayer Data. For instance, tax pros should not communicate with clients via email alone, especially when any special request is made by the client via email; they should always follow up with a phone call.

For employers

To guard against the W-2 tax scam, the IRS recommends the following: “In addition to educating payroll or finance personnel, the IRS and Security Summit partners also urge employers to consider creating a policy to limit the number of employees who have authority to handle Form W-2 requests and that they require additional verification procedures to validate the actual request before emailing sensitive data such as employee Form W-2s.”

What to do if it happens to you

If you receive a fraudulent IRS email or text, don’t click on any links or reply to it. Forward it to phishing@IRS.gov then delete the original email. You should also alert the Treasury Inspector General for Tax Administration.

If you receive a phone call from someone who says they’re with the IRS, take down the caller’s information – name, badge number, call back number, and caller ID. Hang up and then call the IRS directly at 1-800-366-4484 to verify the caller’s identity. If it cannot be verified, report it to phishing@IRS.gov and alert the Treasury Inspector General for Tax Administration.

If you receive an unexpected or suspicious IRS letter, call the IRS at 1-800-829-1040 to confirm its validity. If it is a fake, report it to phishing@IRS.gov and alert the Treasury Inspector General for Tax Administration.

If you are a tax professional targeted by one of these scams, follow the instructions in Data Theft Information for Tax Professionals.

If your organization falls victim to the W-2 scam, email dataloss@irs.gov with “W-2 Data Loss” in the subject line. Organizations that were targeted in this scam, but did not fall victim to it, are advised to email phishing@irs.gov with “W-2 Scam” in the subject line. See details about what to include in the content of these emails.

Learn more about identity theft.

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