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Each year the IRS puts a spotlight on scams that could have tax implications. The scams identified recently show the influence of the coronavirus pandemic on the criminal activities of scammers.
There are four categories of scams in this year’s list:
• pandemic-related scams like Economic Impact Payment theft and unemployment fraud;
• personal information cons including phishing, ransomware, and phone "vishing;"
• ruses focusing on unsuspecting victims like fake charities and senior/immigrant fraud; and
• schemes that persuade taxpayers into unscrupulous actions such as Offer In Compromise mills and syndicated conservation easements.
Unemployment fraud
There has been a sharp increase in fraudulent unemployment claims during the pandemic, along with the uptick in legitimate claims. The scammer with a stolen ID filed for unemployment and the benefits are sent to the scammer. The victim won’t know what has happened until he or she receives a Form 1099-G reporting their unemployment compensation. Unless the fraud is reported and corrected, the victim will be taxed on the fraudulent benefits.
Scams aimed at tax professionals
Two approaches have been reported for phishing for critical information from tax professionals. One is the “new client” approach, in which the scammer asks to become a new client and attaches a prior year’s tax return and perhaps an IRS notice. The attachments may contain malware, so they should not be downloaded or opened.
The other is an email that purports to be from “IRS Tax E-Filing” and asks that the professional take steps to update or renew Electronic Filing Identification Numbers (EFIN) and Centralized Authorization File (CAF) numbers. Such emails should be reported to the Treasury Inspector General For Tax Administration.
IRS impersonators
Fortunately, there has been a significant decline in telephone callers pretending to be from the IRS and demanding immediate tax payments. IRS received 36,000 reports of these scams in 2019, and only 20,500 in 2020. But that is still 20,500 too many.
The IRS normally contacts taxpayers first by mail, not by telephone. When the Service does make telephone contact, it never demands payment using an iTunes card, gift card, prepaid debit card, money order, or wire transfer.
Offers in compromise mills
The IRS has a program for settling tax debts, and in some circumstances, those debts may be reduced. There has been an explosion of radio and television advertising from firms offering to help taxpayers navigate offers in compromise. The IRS is not happy about that development. "We're increasingly concerned that people having trouble paying their taxes are being duped into misleading claims about settling their tax debts for 'pennies on the dollar'," said IRS Commissioner Chuck Rettig.
Taxpayers may use an IRS-developed tool at IRS.treasury.gov/oic_pre_qualifier/ to determine their eligibility for an offer in compromise.
Identity Protection PIN
IRS this year made its Identity Protection PIN (IP PIN program available to all taxpayers, not just to victims of ID theft or taxpayers in certain states as earlier. The IP PIN is a six-digit code known only to the taxpayer and to the IRS. Using an IP PIN is, in essence, a way to lock a tax account. The IP PIN serves as the key to opening that account. Electronic returns that do not contain the correct IP PIN will be rejected and paper returns will go through additional scrutiny for fraud.
It remains to be seen whether this new numerical designation will be more secure than the Social Security numbers the government has already issued to all taxpayers. The full report on the Dirty Dozen may be found at IRS.gov/newsroom/dirty-dozen.
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