Every year, tens of thousands of Americans receive a troubling phone call, ostensibly from the Internal Revenue Service. Typically, the caller (often with a foreign accent), says the call recipient owes money to the IRS, which has issued a warrant for their arrest. The caller demands payment to satisfy the supposed debt and make the warrant go away.
Fortunately, most people are sufficiently skeptical to ignore these calls, or to report them to the authorities. Many, however, are so frightened by these calls they comply, turning over their hard-earned money to IRS scammers. According to the IRS, for example, in 2014, the Treasury Inspector General for Tax Administration (TIGTA) received more than 90,000 complaints from targets of this scam. They also identified about 1,100 victims who had lost in total more than $5 million.
How Do Scammers Get Away with It?
This scam, and the many others foisted on taxpayers and tax preparers every year, might seem to be foolish on the part of the scammers. After all, most people are too smart to be tricked into turning over their money without checking to see that the caller is in fact a representative of the IRS.
For scammers, however, it's a volume business—if even a tiny fraction of people fall for their scam, they can make huge amounts of money. And they can do so with relative impunity: it's extremely difficult to track down perpetrators or these scams and bring them to justice.
What Are the Most Common IRS Scams?
Scammers are creative—and persistent. They're continually coming up with new ways to separate gullible people from their money. Some scams, however, are more profitable than others, including the following 3:
1. Pay Or Be Arrested
This is the scam detailed above. The caller, typically with a foreign accent and a fake name (beware of a caller with a thick Indian accent who says his name is "John Smith"), and often giving a fake IRS badge ID number, says you own the IRS money. They often say you'll be arrested if you don't pay, or tell recent immigrants (a favorite target) they'll be deported. They usually ask for money in the form of a gift card or wire transfer. It's not unusual for these scammers to become both hostile and insulting if you ask questions.
There are easy ways to know that these calls are a scam. For one thing, the IRS never calls taxpayers about outstanding debts—they always send such notifications by mail. For another, the IRS does not threaten to have people arrested, won't ask for immediate payment through spurious means, such as prepaid debit or gift cards, and will never ask for someone's credit or debit card numbers over the phone.
2. We Need Information about Your Clients
Scammers don't only target individual taxpayers. Increasingly, they're focusing their efforts or tax professionals. Their goal is to trick tax preparers into turning over their clients' personal financial data, so they can file fraudulent state and federal income tax returns and receive the refunds.
Often, the scammer uses the ruse of "informing" tax professionals about scams, including the so-called e-Services Scam, in which scammers send a phishing email urging tax preparers to sign a new e-Services agreement. The goal is to steal passwords and other sensitive data. Other tax professional scams include those which attempt to steal PTINs, EFINs and e-Service passwords, those which mimic software providers, and those which seek to "unlock" tax software accounts.
To protect themselves and their clients, tax professionals need to stay abreast of the latest scamming initiatives. A good start is to read Publication 4557, "Safeguarding Taxpayer Data, A Guide for Your Business."
3. They've Gone Phishing
An increasingly pervasive IRS scam in one in which scammers send bogus emails, typically using both the IRS name and logo, in an effort to obtain personal and financial information. The scammers then use this information to commit identity theft. In some cases, the scammer will claim to be a representative of popular tax software companies, or even the victim's personal tax preparer.
In some cases, scammers directly ask for financial information. In others, they send emails (or text messages) infected with malware, which can infect your computer to steal that information. The bottom line: just as the IRS doesn't communicate important notifications by phone, they don't initiate contact via emails. If you receive an email ostensibly from the IRS, don't respond, and report it immediately to the IRS.
This is just a small sampling of the many scams of which you need to be aware to avoid being victimized. You work hard for your money, and that means you need to remain vigilant in protection of it, and of your rights.
One of the best ways to protect yourself is to partner with an experienced, competent CPA firm. To learn more about the ways our personal and business tax preparation, accounting and bookkeeping services can help you meet all your tax needs, contact us today.