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Tax Fraud: The IRS Dirty Dozen List

The Criminal Investigation (CI) unit is a special criminal division of the IRS. The CI is tasked with investigating and uncovering tax-related crimes and prosecuting these cases. Each year the CI provides the IRS an annual report detailing their work and highlighting their successes and enforcements related to tax and financial crimes. Why is this important to you? The work of the CI is critical in protecting taxpayers as well as maintaining the integrity of our financial system. Even more importantly, the information uncovered by the CI paints a very clear picture of the criminal activities on the rise and provides each of us an understanding of what to watch out for and how to protect ourselves and our personal information in the future. You can view the CI's full report here for 2020.

In 2020, $2.3 billion was identified as tax fraud including general tax fraud, abusive tax schemes, unemployment tax, identity theft, and refund fraud. Unfortunately, tax crimes in 2020 had thieves preying on those who needed financial assistance the most due to COVID-19 impacts. These tax crimes were more complex and sinister than ever before and included theft through identity theft, phishing, fake charities, false claims, and more. 

Each year the IRS reports on the "Dirty Dozen", a list of the 12 most prevalent tax crimes of the year. It probably comes as no surprise that the 2020 list focuses attention on the new coronavirus tax relief, including economic income payments. According to the IRS, "This year, the Dirty Dozen focuses on scams that target taxpayers. The criminals behind these bogus schemes view everyone as potentially easy prey. The IRS urges everyone to be on guard all the time and look out for others in their lives." While it's important to pay special attention during tax season, taxpayers are encouraged to review the list in a special section on IRS.gov and be on the lookout for these scams throughout the year.  

Let's take a look at last year's Dirty Dozen scams as reported by the IRS. [The following is an excerpt from their report and has been edited for this audience]:

Phishing:

The IRS will never initiate contact with taxpayers via email about a tax bill, refund, or Economic Impact Payments. Don't click on the website or email links claiming to be from the IRS, they may be nothing more than scams to steal personal information. CI has seen a tremendous increase in phishing schemes utilizing emails, letters, texts, and links. These phishing schemes are using keywords such as "coronavirus," "COVID-19" and "Stimulus" to play on fears of the virus and stimulus payments. For more information see IR-2020-115, IRS warns against COVID-19 fraud; other financial schemes.

Fake Charities:

Criminals use situations like the COVID-19 pandemic to set up fake charities, designed to steal from well-intentioned people. These schemes normally start with unsolicited contact by telephone, text, social media, email, or even in-person. They may even claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds. Legitimate charities will provide their Employer Identification Number (EIN), if requested, which can be used to verify their legitimacy. Taxpayers can find legitimate and qualified charities with the search tool on IRS.gov.

Threatening Impersonator Phone Calls:

Criminals impersonating the IRS is becoming more common. Threatening phone calls from a criminal claiming to be with the IRS, scammers scare the potential victim into handing over vital information. Scam phone calls can include threats of arrest, deportation, or license revocation if the victim doesn't pay a bogus tax bill. These calls often take the form of a "robocall" (a text-to-speech recorded message with instructions for returning the call). Remember, as scary as they may be, the IRS will never demand immediate payment.  They do not threaten, ask for financial information over the phone, or call about an unexpected refund or Economic Impact Payment (EIP).  

Social Media Scams:

Taxpayers need to protect themselves against social media scams. These scams have led to an increase in tax-related identity theft. Scammers start by convincing a potential victim that he or she is dealing with a person close to them, that they trust, via email, text, or social media messaging. These are just access points for malware that can be used to infiltrate the victims accounts and devices. Once these criminals have access to one account, they use that account and the associated trust in the victim, to infiltrate the victim’s contacts, including family and friends.

EIP or Refund Theft:

The IRS has made great strides against refund fraud and theft in recent years, but it remains an ongoing threat. In 2020, criminals also turned their attention to stealing Economic Impact Payments as provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Much of this stems from identity theft, whereby criminals file false tax returns or supply other bogus information to the IRS to divert refunds to addresses or bank accounts they control. Taxpayers can consult the Coronavirus Tax Relief page of IRS.gov for assistance in getting their EIPs. Anyone who believes they may be a victim of identity theft should consult the Taxpayer Guide to Identity Theft on IRS.gov.

Senior Fraud:

Seniors are more likely to be targeted and victimized by scammers than other segment of our society. Older Americans are becoming more comfortable with evolving technologies, such as social media. Unfortunately, that gives scammers another means of taking advantage of them. Phishing scams linked to COVID-19 have been a major threat and seniors need to be alert for a continuing surge of fake emails, text messages, websites, as well as social media attempts to steal personal information.

Scams Targeting non-English Speakers:

IRS impersonators and other scammers also target groups with limited English proficiency. Phone scams pose a major threat to people with limited access to information, including individuals where English is not their first language. These calls frequently take the form of "robocalls". A common one remains the IRS impersonation scam mentioned above where a taxpayer receives a telephone call threatening jail time, deportation, or revocation of a driver's license from someone claiming to be with the IRS. Taxpayers who are recent immigrants often are the most vulnerable and to be aware of these scams.

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 they regret later. Taxpayers should avoid so-called "ghost" preparers who expose their clients to potentially serious filing mistakes as well as possible tax fraud and risk of losing their refunds. Ghost preparers don't sign the tax returns they prepare. By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a Preparer Tax Identification Number (PTIN). Paid preparers must sign and include their PTIN on returns.Taxpayers are ultimately responsible for the accuracy of their tax return, regardless of who prepares it. Taxpayers can go to a special page on IRS.gov for tips on choosing a preparer.

“Offer in Compromise” Mills:

Taxpayers need to be wary of misleading tax debt resolution companies that can exaggerate chances to settle tax debts for "pennies on the dollar" through an Offer in Compromise (OIC). These offers are available for taxpayers who meet very specific criteria under law, but unscrupulous companies oversell the program to unqualified candidates. Individual taxpayers can use the free online Offer in Compromise Pre-Qualifier tool to see if they qualify. This tool allows taxpayers to confirm eligibility and provides an estimated offer amount. Taxpayers can apply for an OIC without third-party representation, but the IRS reminds taxpayers that if they need help, they should be cautious about whom they hire.

Fake Payments with Repayment Demands:

Criminals are always finding new ways to trick taxpayers into believing their scam including putting a bogus refund into the taxpayer's actual bank account. A scammer obtains a taxpayer's personal data, including Social Security number or Individual Taxpayer Identification Number (ITIN), and bank account information. They then file a bogus tax return and have the refund deposited into the taxpayer's account. The taxpayer is told that there's been an error and that the IRS needs the money returned immediately. The scam then devolves into a gift card request for the amount of the refund. Anytime you receive an unexpected return you should reach out to your banking institution and to the IRS, and remember; never send gift cards to someone you don’t know.

Payroll and HR Scams:

As criminals get more creative, the fraud points move further upstream.  Using spoofing email tactics, fraudsters are stealing W-2’s and other sensitive information from HR and tax professionals. Once in possession of this information, fraudsters will reach out to individuals, often after depositing money into their accounts and request repayment of those funds via gift card. These scams have used a variety of ploys to include requests for wire transfers or payment of fake invoices. The IRS has observed variations of these scams where fake IRS documents are used to lend legitimacy to the bogus request. The IRS requests that Form W-2 scams be reported to: phishing@irs.gov (Subject: W-2 Scam).

Ransomware:

Ransomware is malware targeting human and security weaknesses to infect a potential victim's computer, network or server. Victims generally aren't aware of the attack until they try to access their data, or they receive a ransom request in the form of a pop-up window. These criminals don't want to be traced so they frequently use anonymous messaging platforms and demand payment in virtual currency such as Bitcoin. Criminals might use a phishing email to trick a potential victim into opening a link or attachment containing the ransomware. These may include email solicitations to support a fake COVID-19 charity. 

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