COVID-19 Plagues the IRS’s 2020 List of Dirty Dozen Tax Scams by Joseph L. Saka, CPA/PFS
Posted on August 06, 2020
There is no doubt that the COVID-19 health crisis has permeated almost every aspect of life in 2020. According to the IRS, the pandemic has even spread to the agency’s annual list of the 12 most common tax scams criminals use to steal taxpayers’ money and personal information. Following are the “Dirty Dozen” schemes to look out for through the remainder of this year.
Criminals go to great lengths to create authentic-looking emails, texts and websites intended to trick you into revealing your personally identifiable information, including passwords, Social Security number and credit card and bank account details. It is not unusual for scammers to pose as official entities and use fear tactics and keywords, such as coronavirus, stimulus payment, SBA loan or tax refund, to lure victims into voluntarily sharing their data. Always remember that the IRS will never use email, text or phone to initiate contact about a tax bill, refund or Economic Impact Payment (EIC). Never respond to unsolicited emails with your personal information and think twice before clicking on links or downloading attachments included in those messages.
The COVID-19 pandemic is just one more natural disaster that criminals exploit to steal from well-intentioned people trying to help in times of need. After setting up a fake charity and bogus website, scam artists will make phone calls, send texts and emails, and even post on social media to request donations. Often, the name of the charity they use is similar to those used by legitimate nonprofits. Before responding to any request for donations, visit the IRS’s website to confirm the organization’s Employer Identification Number (EIN) and its status as a qualified charity.
Threatening Impersonator Phone Calls
Scam artists have been known to impersonate the IRS, collections agencies and creditors and demand victims make immediate payments for bogus bills. They also commonly use automated, prerecorded “robocalls” that instruct victims to call back and make payments. The key to each of these calls is that as part of their fear tactics, criminals threaten victims with arrest, deportation or license revocation. It is important to remember that the IRS will never demand immediate payment, make threats or ask for financial information over the phone. If you suspect that a call is genuine, do not rely on the callback number included in the message. Instead, take the time to look up the correct telephone numbers for the IRS or the financial institution the caller claims to represent.
Social Media Scams
Despite all the benefits of social media, these platforms are known to be breeding grounds for criminals to share false information with the intent to perpetrate a scam. Using the personal information that you post on your own social media accounts, scammers can impersonate your family members, friends or co-workers and send you messages about shared interests that actually link to malware that can infect your devices. They may even infiltrate your email and cell phone to send messages directly to your contacts, continuing their scams and/or soliciting small donations to fake charities.
EIP or Tax Refund Theft
With tax-refund thefts, criminals steal your identity and file false tax returns that divert tax refunds directly to them. This year, their attention turned to intercepting taxpayers’ Economic Impact Payments, which the Coronavirus Aid, Relief, and Economic Security (CARES) Act established to help Americans struggling in the wake of the health crisis.
A wide range of evolving tax scams target older Americans who are more likely to be victimized than other segment of society. Often, the persons committing these frauds are individuals that seniors know and trust, including family members and professional advisors. Other times, the scams occur over the phone, via text, email and social media by strangers. It is imperative that senior citizens take precautions to protect their digital devices and personal information. In addition to using two-factor authentication to log into financial accounts, they should learn the tell-tale signs of social media and phishing scams, especially those centered around the COVID-19 pandemic, and avoid clicking on links in unsolicited emails and social media posts.
Scams Targeting Non-English Speakers
A common scam targeting immigrants and other people with limited English proficiency is one in which criminals pose as the IRS and threaten jail time, deportation or revocation of drivers’ licenses. Often, callers will have victims’ personal information, such as their address, to make themselves appear legitimate.
Unscrupulous Tax Return Preparers
Most tax professionals provide honest and reliable services. However, with every tax season comes a new crop of criminals and dishonest tax preparers who operate solely for the purpose of committing identify theft and tax-refund fraud. To protect yourself from these so-called “ghost” preparers, request a copy of the preparer’s valid, IRS-issued Preparer Tax Identification Numbers (PTINs) and avoid working with anyone who does not sign or include their PTIN on the tax returns they prepare. Another tip is to avoid working with anyone who bases their fees on a percentage of a refund or who promises an inflated refund before seeing your tax records. Remember that you are ultimately responsible for the accuracy of your tax return regardless of who prepares it.
Offer in Compromise Mills
Taxpayers should be wary of tax-debt-resolution companies falsely claiming they can settle tax debts for “pennies on the dollar” through an Offer in Compromise (OIC). Often these firms charge exorbitant fees churning out forms to help you apply for a program for which you are unlikely to qualify. In fact, according the IRS, only 18,000 of the 54,000 OICs it received in 2019 were accepted. Instead, you should work with experienced tax preparers or visit the IRS’s website and use its free Offer in Compromise Pre-Qualifier tool to determine your eligibility and receive an estimated of a potential offer amount.
Fake Payments with Repayment Demands
Criminals can use your Social Security number or Individual Taxpayer Identification Number (ITIN) and bank account information to file bogus tax returns and have refunds deposited into your checking or savings accounts. At that point, criminals posing as IRS employees will call and tell you there was an error processing your tax return and you must immediate return the refund by buying specific gift cards or risk penalties and interest on the unreturned amount. Again, at no time will the IRS call you to demand payment or instruct you to use a specific payment method to meet your tax liabilities.
Payroll and HR Scams
Business email compromises (BECs) and business email spoofing (BES) are two phishing scams designed to steal businesses’ W-2 forms and other tax information. Both use a variety of ploys, including bogus IRS documents, to trick employees into believing the messages they receive come from actual company executives. Businesses must put into place a series of policies, systems, controls and employee education programs to not only protect themselves from these scams but also to safeguard sensitive information that could expose them, their employees and their business partners to fraud.
Ransomware is malicious software hidden in phishing emails that can infect victims’ computers, networks and/or servers. Once downloaded, the software can track keystrokes and other computer activity and even lock sensitive data with its own encryption. Victims generally are not aware of a ransomware attack until they try to access their data. At that point, scammer may demand victims pay a ransom, often in the form of Bitcoin.
About the author: Joseph L. Saka, CPA/PFS, is CEO of Berkowitz Pollack Brant Advisors + CPAs, where he provides entrepreneurs, high-net-worth families, family companies and business executives in the U.S. and abroad with a full range of income and estate planning services; tax, business consulting and compliance services; and financial planning expertise. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or via e-mail at firstname.lastname@example.org.