The Criminal Investigation (CI) unit is a special criminal division of the IRS. The CI is tasked with investigating and uncovering tax-related crimes and prosecuting these cases. Each year the CI provides the IRS an annual report detailing the work of the CI and highlighting their successes and enforcements related to tax and financial crimes.
Why is this important to you? The work of the CI is critical in protecting taxpayers as well as maintaining the integrity of our financial system. Even more importantly, the information uncovered by the CI paints a very clear picture of the criminal activities on the rise and provides each of us an understanding of what to watch out for and how to protect ourselves and our personal information in the future. You can view the CI’s full report here from 2020.
In 2020, $2.3 billion was identified as tax fraud including general tax fraud, abusive tax schemes, unemployment tax, identity theft, and refund fraud. Unfortunately, tax crimes in 2020 had thieves preying on those who needed financial assistance the most due to COVID-19 impacts. These tax crimes were more complex and sinister than ever before and included theft through identity theft, phishing, fake charities, false claims, and more.
Each year the IRS reports on the “Dirty Dozen”, a list of the 12 most prevalent tax crimes of the year. It probably comes as no surprise that the 2020 list focuses attention on the new coronavirus tax relief, including economic income payments. According to the IRS, “This year, the Dirty Dozen focuses on scams that target taxpayers. The criminals behind these bogus schemes view everyone as potentially easy prey. The IRS urges everyone to be on guard all the time and look out for others in their lives.” While it’s important to pay special attention during tax season, Taxpayers are encouraged to review the list in a special section on IRS.gov and be on the lookout for these scams throughout the year.
Let’s take a look at last year’s Dirty Dozen scams as reported by the IRS. [The following is an excerpt from their report and has been edited for this audience]:
The IRS will never initiate contact with taxpayers via email about a tax bill, refund or Economic Impact Payments. Don’t click on website or email links claiming to be from the IRS as they may be nothing more than scams to steal personal information. CI has seen a tremendous increase in phishing schemes utilizing emails, letters, texts and links. These phishing schemes are using keywords such as “coronavirus,” “COVID-19” and “Stimulus” to play on fears of the virus and stimulus payments. For more see IR-2020-115, IRS warns against COVID-19 fraud; other financial schemes.
Criminals frequently situations such as the current COVID-19 pandemic by setting up fake charities to steal from well-intentioned people. Fraudulent schemes normally start with unsolicited contact by telephone, text, social media, e-mail or in-person using a variety of tactics. Bogus websites use names similar to legitimate charities to trick people to send money or provide personal financial information. They may even claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds. Legitimate charities will provide their Employer Identification Number (EIN), if requested, which can be used to verify their legitimacy. Taxpayers can find legitimate and qualified charities with the search tool on IRS.gov.
Threatening Impersonator Phone Calls
IRS impersonation scams come in many forms. A common one remains bogus threatening phone calls from a criminal claiming to be with the IRS. The scammer attempts to instill fear and urgency in the potential victim. In fact, the IRS will never threaten a taxpayer or surprise him or her with a demand for immediate payment. Scam phone calls, including those threatening arrest, deportation or license revocation if the victim doesn’t pay a bogus tax bill, are reported year-round. These calls often take the form of a “robocall” (a text-to-speech recorded message with instructions for returning the call). The IRS will never demand immediate payment, threaten, ask for financial information over the phone, or call about an unexpected refund or Economic Impact Payment.
Social Media Scams
Taxpayers need to protect themselves against social media scams, which frequently use events like COVID-19 to try tricking people. Social media scams have led to tax-related identity theft. 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. A scammer may email a potential victim and include a link to something of interest to the recipient 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.
EIP or Refund Threat
The IRS has made great strides against refund fraud and theft in recent years, but they remain an ongoing threat. Criminals this year also turned their attention to stealing Economic Impact Payments as provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Much of this stems from identity theft whereby criminals file false tax returns or supply other bogus information to the IRS to divert refunds to wrong addresses or bank accounts. Taxpayers can consult the Coronavirus Tax Relief page of IRS.gov for assistance in getting their EIPs. Anyone who believes they may be a victim of identity theft should consult the Taxpayer Guide to Identity Theft on IRS.gov.
Seniors are more likely to be targeted and victimized by scammers than other segments of society. Financial abuse of seniors is a problem among personal and professional relationships. Older Americans are becoming more comfortable with evolving technologies, such as social media. Unfortunately, that gives scammers another means of taking advantage. Phishing scams linked to Covid-19 have been a major threat this filing season. Seniors need to be alert for a continuing surge of fake emails, text messages, websites, and social media attempts to steal personal information.
Scams Targeting Non-English Speakers
IRS impersonators and other scammers also target groups with limited English proficiency. Some scams also target those potentially receiving an Economic Impact Payment and request personal or financial information from the taxpayer. Phone scams pose a major threat to people with limited access to information, including individuals not entirely comfortable with the English language. These calls frequently take the form of an automated “robocall”, but in some cases may be made by a real person. A common one remains the IRS impersonation scam 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.
Unscrupulous Return Preparers
Most tax professionals provide honest, high-quality service, but dishonest preparers pop up every filing season committing fraud, harming innocent taxpayers or talking taxpayers into doing illegal things they regret later. Taxpayers should avoid so-called “ghost” preparers who expose their clients to potentially serious filing mistakes as well as possible tax fraud and risk of losing their refunds. Ghost preparers don’t sign the tax returns they prepare. They may print the tax return and tell the taxpayer to sign and mail it to the IRS. For e-filed returns, the ghost preparer will prepare but not digitally sign as the paid preparer. By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a Preparer Tax Identification Number (PTIN). Paid preparers must sign and include their PTIN on returns. Taxpayers are ultimately responsible for the accuracy of their tax return, regardless of who prepares it. Taxpayers can go to a special page on IRS.gov for tips on choosing a preparer.
Offer in Compromise Mills
Taxpayers need to wary of misleading tax debt resolution companies that can exaggerate chances to settle tax debts for “pennies on the dollar” through an Offer in Compromise (OIC). These offers are available for taxpayers who meet very specific criteria under law to qualify for reducing their tax bill. But unscrupulous companies oversell the program to unqualified candidates so they can collect a hefty fee from taxpayers already struggling with debt. Individual taxpayers can use the free online Offer in Compromise Pre-Qualifier tool to see if they qualify. The simple tool allows taxpayers to confirm eligibility and provides an estimated offer amount. Taxpayers can apply for an OIC without third-party representation; but the IRS reminds taxpayers that if they need help, they should be cautious about whom they hire.
Fake Payments With Repayment Demands
Criminals are always finding new ways to trick taxpayers into believing their scam including putting a bogus refund into the taxpayer’s actual bank account. Here’s how the scam works:
A thief steals or obtains a taxpayer’s personal data including Social Security number or Individual Taxpayer Identification Number (ITIN) and bank account information. The scammer files a bogus tax return and has the refund deposited into the taxpayer’s checking or savings account. The fraudster then places a call to them, posing as an IRS employee. The taxpayer is told that there’s been an error and that the IRS needs the money returned immediately. The taxpayer is told to buy specific gift cards for the amount of the refund. Anytime a taxpayer receives an unexpected refund and a call from us out of the blue demanding a refund repayment, they should reach out to their banking institution and to the IRS.
Payroll and HR Scams
Tax professionals, employers and taxpayers need to be on guard against phishing designed to steal Form W-2s and other tax information. These are Business Email Compromise (BEC) or Business Email Spoofing (BES). Currently, two of the most common types of these scams are the gift card scam and the direct deposit scam.
In the gift card scam, a compromised email account is often used to send a request to purchase gift cards in various denominations. In the direct deposit scheme, the fraudster may have access to the victim’s email account. They may also impersonate the potential victim to have the organization change the employee’s direct deposit information to reroute their deposit to an account the fraudster controls.
BEC/BES scams have used a variety of ploys to include requests for wire transfers, payment of fake invoices as well as others. In recent years, the IRS has observed variations of these scams where fake IRS documents are used to lend legitimacy to the bogus request. For example, a fraudster may attempt a fake invoice scheme and use what appears to be a legitimate IRS document to help convince the victim.
The Direct Deposit and other BEC/BES variations should be forwarded to the Federal Bureau of Investigation Internet Crime Complaint Center (IC3) where a complaint can be filed. The IRS requests that Form W-2 scams be reported to: [email protected] (Subject: W-2 Scam).
This is a growing cybercrime. Ransomware is malware targeting human and technical weaknesses to infect a potential victim’s computer, network or server. Malware is a form of invasive software that is inadvertently downloaded by the user. Once downloaded, it tracks keystrokes and other computer activity. Once infected, ransomware looks for and locks critical or sensitive data with its own encryption. In some cases, entire computer networks can be adversely impacted.
Victims generally aren’t aware of the attack until they try to access their data, or they receive a ransom request in the form of a pop-up window. These criminals don’t want to be traced so they frequently use anonymous messaging platforms and demand payment in virtual currency such as Bitcoin.
Cybercriminals might use a phishing email to trick a potential victim into opening a link or attachment containing the ransomware. These may include email solicitations to support a fake COVID-19 charity.
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Prepared by NXG|Strategies, Copyright 2021.