Research and Statistics

Threat of tax fraud, tax ID theft grows


The year 2016 has already seen a surge in email tax fraud, the IRS warns, and private tax collectors may add to the confusion

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Threat of tax fraud, tax ID theft grows

The 2016 tax season is shaping up as a scary one for taxpayers – and not just over the money they may owe:

  • Email scams are rampant in 2016, the Internal Revenue Service warned in February, soaring 400 percent.
  • Tax refund fraud contributed heavily to a surge in ID theft in 2015, and shows no sign of abating.
  • And late this year, legitimate private tax-debt collectors will debut, introducing more confusion and potential risk.

The email scam is the latest surge. Crooks try to trick consumers into believing the emails are coming from the IRS or others in the tax industry, including tax software companies. They’re also using texts to try to scam consumers.

The IRS says the fake emails run the gamut, related to everything from refunds to filing status to confirming personal information to verifying PIN information.

If consumers click on a link in an email, they’re often taken to sites that try to imitate or other legitimate websites. The sites might request personal information or infect your computer with malware.

“While more attention has focused on the continuing IRS phone scams, we are deeply worried this increase in email schemes threatens more taxpayers,” IRS Commissioner John Koskinen said in a statement.

Impostor scams varied, rampant

Discerning what’s legitimate and what’s not is a major concern for taxpayers. IRS impostor scams are rampant, accounting for millions of dollars in financial losses for victims and generating tens of thousands of consumer complaints.

Regardless of whether you’re contacted by phone, mail or email by someone claiming to be from the IRS, “Don’t click a link, call back a number or call a number in a letter,” cautions Eva Casey-Velasquez, CEO of the Identity Theft Resource Center. Instead, you should look up contact information for the IRS yourself and contact the agency. “You go to the agency, you don’t let them come to you.”

IRS impostor scams are pervasive. In October, the Treasury Inspector General for Tax Administration said in a statement that the agency had received reports of about 736,000 fraudulent telephone contacts since October 2013.

The agency has reports of about 4,550 victims, who shelled out $23 million to scammers in the form of prepaid debit cards or wire transfers.

The fraudsters will “spoof” your caller ID so it looks like the IRS is calling you. The callers will use false names and fake IRS badge numbers. They may threaten you with arrest, deportation, legal action or loss of your business license or driver’s license.

Melanie Lauridsen, a senior manager on the tax team of the American Institute of CPAs, says the crooks play on people’s fears and get them to send money by claiming to be from the IRS. “People start panicking. They’ll do anything to get the IRS off their back.”

For 2016, the scammers have added a new trick – they also may claim to be from the Treasury Department, warned J. Russell George, the Treasury Inspector General for Tax Administration. “If someone unexpectedly calls claiming to be from the IRS or in a new twist, the Treasury Department, and uses the threat of legal action if you do not pay immediately, that is a sign that it is not the IRS calling and your cue to hang up,” he said in a press release. “Do not engage with these callers. If they call you, hang up the telephone.”

irs, tax, fraud, id theft, email

What’s real; what’s not
Any legitimate effort to collect unpaid taxes will start with the IRS sending a letter, Lauridsen says.

But confusion can arise when fraudsters send letters that appear to have come from the IRS, she says. The letters may direct taxpayers to a website. The site may say you can pay your tax bill immediately using a credit card, which is something the IRS doesn’t do.

If you’re unsure if a letter is legitimate, Lauridsen recommends taking it to your tax preparer or to an IRS service center, or calling the IRS directly, using a number you look up yourself.

It’s not clear when the IRS will begin using third-party debt collectors. Despite opposition from the IRS, Congress ordered use of debt collectors as part of the new highway funding bill that took effect in December. The law allows debt collectors to use robocalls or robotexts.

The law required the IRS to sign contracts with private debt collection firms by March 1. In February, IRS Commissioner John Koskinen told members of Congress that the IRS couldn’t meet the deadline, the website Law360 reported. Instead, the IRS was hoping to have the contracts with private debt collectors in place by the end of September.

According to the U.S. General Accounting Office (GAO), unpaid taxes totaled $380 billion as of September 2014. That’s up 23 percent since 2009. At the same time, the IRS debt collection staff has declined by 23 percent.

Lauridsen says her main concern is the debt collectors having access to taxpayers’ Social Security numbers. “You don’t know their moral compass.” An unscrupulous debt collector could use the Social Security numbers for other types of fraud.

Tax identity theft
Tax identity theft is already a rampant problem, as fraudsters file fake tax returns under someone else’s Social Security number in order to collect a refund. According to the Federal Trade Commission, tax fraud contributed heavily to a spike in ID theft complaints in 2015.

The IRS paid out at least $5.2 billion in fraudulent tax refunds during the 2013 tax filing season and prevented $24.2 billion in fraud. But no one knows exactly how much tax refund fraud occurred, according to the GAO.

At a time when tax identity theft is rampant, the IRS enforcement budget has been slashed.

— John Breyault
National Consumers League

The IRS has been hampered by repeated budget cuts, and the number of criminal investigators is at its lowest level since the 1970s. In 2015, the agency initiated about 1,550 identity theft and questionable refund investigations, down from nearly 2,100 in 2014.

“It speaks to a larger problem. At a time when tax identity theft is rampant, the IRS enforcement budget has been slashed,” says John Breyault, a vice president with the National Consumers League.

Fraudsters get their hands on individuals’ Social Security numbers by various means, such as when the information is stolen in data breaches and sold online.

Protect yourself
One of your best lines of defense against fraudsters is to file your tax return early, Breyault says.

You also need to keep an eye out for phishing emails, which appear to come from a legitimate organization, but are designed to trick you into clicking a link or opening an attachment that unleashes malware on your computer, he says. The malware could steal personal information that can be used by tax identity thieves.

If you live in Florida, Georgia or Washington, D.C., where tax fraud is pervasive, you can request an Identity Protection PIN as part of an IRS pilot program, Lauridsen says. The PIN confirms your identity when a return with your Social Security number is filed.

Once you request a PIN, you will need to use the PIN for all future tax returns. A new PIN is mailed to you each year.

Victims of tax identity theft from anywhere in the country also receive a PIN once their case has been resolved by the IRS.

See related:  FTC adds tools for ID theft victims

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