IRS' "Dirty Dozen" Tax Scams for 2021
Where’s Lee Marvin when we need him?
The Internal Revenue Service has released its "Dirty Dozen Tax Scams" list for 2021."We continue to see scam artists use the pandemic to steal money and information from honest taxpayers in a time of crisis," said IRS Commissioner Chuck Rettig. "We provide this list to alert taxpayers about common scams that fraudsters use against their victims. At the IRS, we are dedicated to stopping these criminals, but it's up to all of us to remain vigilant to protect ourselves and our families."
1. Economic Impact Payment Theft
A continuing threat to individuals is from identity thieves who try to steal Economic Impact Payments (EIPs), also known as stimulus payments. Most eligible people will get their payments automatically from the IRS.
Taxpayers should watch out for these tell-tale signs of a scam:
• Any text messages, random incoming phone calls or emails inquiring about bank account information or requesting recipients to click a link or verify data should be considered suspicious and deleted without opening.
• Be alert to mailbox theft. Frequently check mail and report suspected mail losses to Postal Inspectors.
• Don't fall for stimulus check scams. The IRS won't initiate contact by phone, email, text or social media asking for Social Security numbers or other personal or financial information related to Economic Impact Payments.
2. Unemployment Fraud Leading to Inaccurate Taxpayer 1099-Gs
Because of the COVID-19 pandemic, many taxpayers lost their jobs and received unemployment compensation from their state. However, scammers also took advantage of the pandemic by filing fraudulent claims for unemployment compensation using stolen personal information of individuals who had not filed claims. Payments made on these fraudulent claims went to the identity thieves.
The IRS reminds taxpayers to be on the lookout for receiving a Form 1099-G reporting unemployment compensation that they didn't receive. For people in this situation, the IRS urges them to contact their appropriate state agency for a corrected form. If a corrected form cannot be obtained so that a taxpayer can file a timely tax return, taxpayers should complete their return claiming only the unemployment compensation and other income they actually received. See Identity Theft and Unemployment Benefits for tax details and DOL.gov/fraud for state-by-state reporting information.
Phishing scams target individuals with communications appearing to come from legitimate sources to collect victims' personal and financial data and potentially infect their devices by convincing the target to download malicious programs. Cybercriminals usually send these phishing communications by email but may also use text messages or social media posts or messaging.
These phishing schemes can be tricky and cleverly disguised to look like they're from the IRS or from others in the tax community. Taxpayers are reminded to continually watch out for emails and other scams posing as the IRS, like those promising a big refund, missing stimulus payment or even issuing a threat. People should not open attachments or click on links in those emails or text messages.
Even tax professionals aren’t safe, as many have reported receiving scam e-mails from the fictitious "IRS Tax E-Filing" and the IRS reminds tax professionals who receive those e-mails to not open any attachments or click any links. Rather, they should report the scam to the Treasury Inspector General for Tax Administration.
4. Social Media Scams
Social media enables unscrupulous individuals to lurk on accounts and extract personal information to use against the victim. These cons may send emails impersonating the victim's family, friends or co-workers.
The basic element of social media scams is 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.
Using personal information, a scammer may email a potential victim and include a link to something of interest to the recipient, but which contains malware intended to commit more crimes. Scammers also infiltrate their victim's emails and cell phones to go after their friends and family with fake emails that appear to be real, and text messages soliciting, for example, small donations to fake charities that are appealing to the victims.
5. Impersonator Phone Calls/Vishing
Individuals should be wary of unexpected phone calls asking for personal financial information. The IRS has seen an increase in voice-related phishing, or 'vishing,' particularly from scams related to federal tax liens. For those receiving phone calls out of the blue, security experts recommend asking questions of the caller but not providing any personal information. If in doubt, hang up immediately.
The IRS urges taxpayers to remain vigilant and to remember the following things about the IRS:
• The IRS generally first contacts people by mail - not by phone - about unpaid taxes.
• The IRS may attempt to reach individuals by telephone but will not insist on payment using an iTunes card, gift card, prepaid debit card, money order or wire transfer.
• The IRS will never request personal or financial information by e-mail, text or social media.
Recipients of these calls should hang up before giving out any information. If anyone receives an unexpected call from the IRS that they believe to be a scam, they can report it to the Treasury Inspector General for Tax Administration (TIGTA).
Ransomware is a form of malicious software designed to block access to a computer system or data. Access is often blocked by encrypting data or programs on information technology (IT) systems to extort ransom payments from victims in exchange for decrypting the information and restoring victims' access to their systems or data. In some cases, in addition to the attack, the perpetrators threaten to publish sensitive files belonging to the victims, which can be individuals or business entities.
Cybercriminals using ransomware often resort to common tactics, such as wide-scale phishing and targeted spear-phishing campaigns that induce victims to download a malicious file or go to a malicious site. They may also exploit remote desktop protocol endpoints and software vulnerabilities or deploy "drive-by" malware attacks that host malicious code on legitimate websites. Proactive prevention through effective cyber hygiene, cybersecurity controls and other best practices are often the best defense against ransomware.
7. Fake Charities
The IRS advises taxpayers to be on the lookout for scammers who set up fake organizations to take advantage of the public's generosity. They especially take advantage of tragedies and disasters, such as the COVID-19 pandemic.
Here are some tips to remember about fake charity scams:
• Individuals should never let any caller pressure them. A legitimate charity will be happy to get a donation at any time, so there's no rush. Donors are encouraged to take time to do the research.
• Potential donors should ask the fundraiser for the charity's exact name, web address and mailing address, so it can be confirmed later. Some dishonest telemarketers use names that sound like large well-known charities to confuse people.
• Be careful how a donation is paid. Donors should not work with charities that ask them to pay by giving numbers from a gift card or by wiring money. That's how scammers ask people to pay. It's safest to pay by credit card or check — and only after having done some research on the charity.
For more information about fake charities see the information on fake charity scams on the Federal Trade Commission website.
While it has diminished some recently, the IRS impersonation scam remains common. This is 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 should ignore these threats and not engage the scammers.
The IRS reminds taxpayers that legitimate IRS employees will not threaten to revoke licenses or have a person deported. These are scare tactics.
As phone scams pose a major threat to people with limited access to information, including individuals not entirely comfortable with the English language, the IRS has added new features to help those who are more comfortable in a language other than English. The Schedule LEP PDF allows a taxpayer to select in which language they wish to communicate. Once they complete and submit the schedule, they will receive future communications in that selected language preference.
In an effort to make filing taxes easier for seniors, the IRS reminds seniors born before Jan. 2, 1956 that the IRS has re-designed the Form 1040 and its instructions, and that they can use the Form 1040SR and related instructions.
9. Offer in Compromise "Mills"
Offer in Compromise mills contort the IRS program into something it's not – misleading people with no chance of meeting the requirements while charging excessive fees, often thousands of dollars.
An "offer," or OIC, is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances. However, some promoters are inappropriately advising indebted taxpayers to file an OIC application with the IRS, even though the promoters know the person won't qualify. This costs honest taxpayers money and time.
Taxpayers should be especially wary of promoters who claim they can obtain larger offer settlements than others or who make misleading promises that the IRS will accept an offer for a small percentage. Companies advertising on TV or radio frequently can't do anything for taxpayers that they can't do for themselves by contacting the IRS directly.
Taxpayers can go to IRS.gov and review the Offer in Compromise Pre-Qualifier Tool to see if they qualify for an OIC.
10. Unscrupulous Tax Return Preparers
Although most tax preparers are ethical and trustworthy, taxpayers should be wary of preparers who won't sign the tax returns they prepare, often referred to as ghost preparers. For e-filed returns, the "ghost" will prepare the return, but refuse to digitally sign as the paid preparer.
By law, anyone who is paid to prepare, or assists in preparing federal tax returns, must have a valid Preparer Tax Identification Number (PTIN). Paid preparers must sign and include their PTIN on the return. Not signing a return is a red flag that the paid preparer may be looking to make a quick profit by promising a big refund or charging fees based on the size of the refund.
It's important for taxpayers to choose their tax return preparer wisely. The Choosing a Tax Professional page on IRS.gov has information about tax preparer credentials and qualifications. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help identify many preparers by type of credential or qualifications.
1. Unemployment Insurance Fraud
Unemployment fraud often involves individuals acting in coordination with or against employers and financial institutions to get state and local assistance to which they are not entitled. These scams can pose problems that can adversely affect taxpayers in the long run.
States, employers and financial institutions need to be aware of the following scams related to unemployment insurance:
• Identity-related fraud: Filers submit applications for unemployment payments using stolen or fake identification information to perpetrate an account takeover.
• Employer-employee collusion fraud: The employee receives unemployment insurance payments while the employer continues to pay the employee reduced, unreported wages.
• Misrepresentation of income fraud: An individual returns to work and fails to report the income to continue receiving unemployment insurance payments, or in an effort to receive higher unemployment payments, applicants claim higher wages than they actually earned.
• Fictitious employer-employee fraud: Filers falsely claim they work for a legitimate company, or create a fictitious company, and supply fictitious employee and wage records to apply for unemployment insurance payments.
• Insider fraud: State employees use credentials to inappropriately access or change unemployment claims, resulting in the approval of unqualified applications, improper payment amounts, or movement of unemployment funds to accounts that are not on the application.
12. Promoted Abusive Arrangements
The IRS warns people to be on the lookout for promoters who peddle false hopes of large tax deductions from abusive arrangements. These "deals" are generally marketed by unscrupulous promoters who make false claims about their legitimacy and charge high fees to boot. These promoters frequently devise new ways to cheat the system and market them aggressively.
Some taxpayers play the audit lottery hoping they don't get noticed. To fight the evolving variety of these abusive arrangements, the IRS recently created the Office of Promoter Investigations (OPI) to focus on participants and the promoters of abusive tax avoidance transactions. OPI coordinates service-wide enforcement activities. The best defense for a taxpayer approached by a promoter is to show caution: if it sounds too good to be true, it probably is.
If you have questions concerning any of the information in this month's tip you can reach out to me at 480-513-1830 or schedule a call on my calendar.
Source: WealthManagement.com, July 2021