Combating Tax Scams and Tax Identity Theft 

Tax scammers continue to find innovative ways to target unsuspecting taxpayers. With the 2018 tax season in full swing, the cybercriminals have invented a new scam, nicknamed the “erroneous refund scam.” Starting in 2017, cyberthieves targeted the computer systems of tax and payroll professionals stealing client financial data. Within weeks of beginning to accept 2017 tax returns, it became apparent that the cybercriminals were using the stolen data to file fraudulent tax returns.

In February, the Internal Revenue Service (IRS) issued two alerts about data breaches that affected thousands of taxpayers. Once the scammers had stolen a taxpayer’s information, the thieves filed fraudulent tax returns and have the refund deposited into the taxpayer’s bank account. Once the funds have been erroneously deposited, the scam begins.

How Does the Erroneous Refund Scam Work?

In one scenario, the scammers pose as a debt collection agency acting on behalf of the IRS. A scammer calls to inform the taxpayer that tax funds were deposited in their bank in error. The taxpayer is then instructed to forward the money to the collection agency who will return the money to the IRS. Of course, the money is never returned to the IRS.

In another version of the erroneous refund scam, the taxpayer listens to a recorded phone message that threatens the individual with arrest, criminal fraud charges and a blacklisting of their “security number” if the refund is not immediately returned. The message includes a phone number for the taxpayer to call, which goes to the scammer and not the IRS.

What to Do if You Get a Fraudulent Refund

How to return a fraudulent tax refund depends on the method in which the refund was received:

  • If a taxpayer receives a fraudulent refund via electronic deposit, they should call the IRS at 800-829-1040 and explain the situation. The IRS will initiate an ACH transaction and debit the refund amount out of our account.
  • If a paper check is received, the IRS advises taxpayers to write “void” in the endorsement section, enclose a note with the check stating why the check is being returned and mail the check back to the IRS.

Other Common Tax Scams

IRS-Impersonation Telephone Scams

In this scam, the criminal claims to be an IRS employee and tells the victim they owe money to the IRS. The scammer uses a fake IRS identification badge number and often alters the caller ID to make it appear that the IRS is calling. Posing as an in-the-know government employee, the scammer may reveal private information about the taxpayer or trick the victim into sharing personal or financial information. The scammer uses scare tactics such as threats of arrest, court action, deportation or the suspension of a driver’s license. The victim is told to wire money promptly to the IRS or send a gift card.

Email and Text Message Scams

Cybercriminals are increasingly turning to technology to scam taxpayers. Online thieves send phishing (i.e. fish for information) emails intended to trick unsuspecting victims into disclosing personal information that can be used to steal the victim’s identity. Often, scammers use the IRS name or logo to make the emails appear as official government communications. Text messages are used as a variant of email scams — the intent is still to swindle the taxpayer into divulging personal and financial information.

The “Dirty Dozen” List of Tax Scams

Each year, the IRS compiles a list of the twelve most common scams taxpayers are likely to encounter. Access the current list here: https://www.irs.gov/newsroom/dirty-dozen.

How Is the IRS Protecting Against Identify Theft and Refund Fraud?

In recent years, the IRS joined with the software industry, tax preparation and payroll firms and state tax administrators to protect U.S. taxpayers from identity theft and refund fraud. Their combined efforts of improved security software, encrypted files and scammer awareness training produced a dramatic decline in 2017 of tax-related identify theft. The IRS notes a 40 percent drop in tax-related identity theft fraud — 242,000 taxpayer victim reports in 2017 compared to 401,000 reports in 2016.

How to Know if the IRS Is Attempting to Contact You

The IRS almost always initiates contact with taxpayers through regular mail delivered by the US Postal Service. In some special cases such as for an overdue tax bill or delinquent tax return, the IRS may call or visit. Even then, the IRS normally mails several notices to the taxpayer or company first. The IRS does not initiate contact with taxpayers using email, text messages or social media.

  • An IRS agent will always advise the taxpayer of their rights. Specifically, taxpayers have the right to challenge the amount the IRS states they owe; so the IRS will never demand a set amount of money from a taxpayer upon informing the taxpayer they owe taxes.
  • The IRS will not threaten taxpayers with impending court proceedings, arrest, jail time, deportation or the use of local law enforcement agencies. The IRS follows Collection Due Process and enables the taxpayer petition for a hearing before a special Tax Court.
  • The IRS will never demand immediate payment. The IRS allows taxpayers who owe back taxes to establish a payment plan to discharge the taxes they owe.
  • The IRS will always instruct taxpayers to make payments to the “United States Treasury” and will advise taxpayer to submit payment using Electronic Funds Withdrawal, wire transfer, money order or personal check. Cash is accepted at specific IRS locations. The IRS does not use collection agencies or accept gift cards as a form of payment. Anyone advising a taxpayer they can discharge tax debt using gift cards or by sending payment to an institution other than the United States Treasury is a scammer.

Helping You Avoid Tax Scams

At IKOR, our financial advocacy services address a wide range of predatory behavior, including tax scams. Our life care managers receive specialized training on how to spot, stop and mitigate predatory behavior. In addition to staying current on the most prolific scams, we can identify and coordinate services to help restore the identity of an individual who has been the victim of tax-related identity theft.