IRS updates annual Dirty Dozen tax schemes for 2020

By Sally Schreiber, J.D.

The IRS on Thursday issued its “Dirty Dozen” tax scams for 2020, pointing out that it was placing special emphasis on aggressive and evolving schemes related to coronavirus tax relief, including economic impact payments (IR-2020-160).

“Tax scams tend to rise during tax season or during times of crisis, and scam artists are using pandemic to try stealing money and information from honest taxpayers,” IRS Commissioner Chuck Rettig said.

New to the 2020 list are “offer-in-compromise mills” and ransomware.

Here are the 2020 scams:

Phishing: This scam involves fake emails or websites aiming to steal personal information. The IRS emphasizes that it will never initiate contact with taxpayers using email about a tax bill, refund, or economic impact payment. The IRS warns taxpayers not to click on links claiming to be from the IRS and to be alert that emails and websites may be nothing more than scams to steal personal information.

The IRS Criminal Investigation division has seen a tremendous increase in phishing schemes using emails, letters, texts, and links. Taxpayers should be especially wary of keywords, such as “coronavirus,” “COVID-19,” and “Stimulus.”

Fake charities: This scam makes the list every year. Criminals frequently exploit natural disasters and other situations such as the current COVID-19 pandemic by setting up fake charities to steal from well-meaning people who want to help in times of need. Unfortunately, fake charities often increase during these times.

Fraudulent charity schemes usually start with unsolicited contact by telephone, text, social media, email, or in person. Bogus websites often use names similar to legitimate charities to trick people into sending money or providing personal financial information. Some even claim to be working on behalf of the IRS to help victims file casualty loss claims and get tax refunds.

The IRS explains that legitimate charities will provide their employer identification number (EIN), if requested, which can be used to verify their legitimacy. Taxpayers can protect themselves and find legitimate, qualified charities with the search tool on irs.gov.

Threatening impersonator phone calls: Although IRS impersonation scams come in many forms, a common one is 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. 

Phone scams or “vishing” (voice phishing) pose a major threat. Scam phone calls, including those threatening arrest, deportation, or license revocation if the victim does not pay a bogus tax bill, are reported to occur year-round.

The IRS explains that it will never demand immediate payment, threaten, ask for financial information over the phone, or call about an unexpected refund or economic impact payment. The IRS urges taxpayers to contact the real IRS if they worry about having a tax problem.

Social media scams: Also new to the list, social media scams frequently use events like COVID-19 to try to trick people. Scammers use information people share on social media for a wide variety of scams, including to send emails impersonating a person’s family, friends, or co-workers.

Social media scams have also 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.

Economic impact payment or refund theft: Criminals this year also turned their attention to stealing economic impact payments. These schemes involve criminals’ filing false tax returns or supplying other bogus information to the IRS to divert refunds to wrong addresses or bank accounts.

In particular, the IRS recently warned nursing homes and other care facilities that economic impact payments generally belong to the recipients, not the organizations, because people and businesses may be taking advantage of vulnerable populations who received the payments. These payments do not count as a resource or as income for determining eligibility for Medicaid and other federal programs.

Senior fraud: Senior citizens and their caregivers need to be on alert for tax scams targeting older Americans.

Seniors are more likely to be targeted and victimized by scammers than any other segment of society. Seniors may be victims of financial abuse in many of their personal and professional relationships. Elder fraud seems to be substantially reduced when the service provider knows a trusted friend or family member takes an interest in the senior’s affairs.

Scams targeting non-English speakers: IRS impersonators and other scammers also target groups with limited English proficiency and are often threatening. Many of the scams also target those potentially receiving an economic impact payment and request personal or financial information from the taxpayer.

A common scam aimed at a non-English speaker involves the taxpayer’s receiving a telephone call from someone claiming to be with the IRS who threatens jail time, deportation, or revocation of a driver’s license. Recent immigrants are often the most vulnerable to these scams.

Unscrupulous return preparers: This is another recurring item on the list. The IRS emphasizes that selecting the right return preparer is important because preparers have taxpayers’ personal data. Although most tax professionals provide honest, high-quality service, dishonest preparers are around every filing season.

Taxpayers should avoid “ghost” preparers who expose their clients to potentially serious filing mistakes as well as possible tax fraud and risk of losing their refunds. With many tax professionals’ offices closed, the IRS warns taxpayers to be especially careful in selecting an honest tax preparer.

A ghost preparer does not sign the tax returns he or she prepares, but prints it and tells 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. Anyone who is paid to prepare or assists in preparing federal tax returns must have a preparer tax identification number (PTIN) and must sign and include the PTIN on returns.

Offer-in-compromise mills: New to the list this year is a warning about misleading tax debt resolution companies that exaggerate their ability to settle tax debts for “pennies on the dollar” through an offer in compromise (OIC). These offers require taxpayers to meet specific legal criteria to qualify. Unscrupulous companies try to enroll unqualified candidates to collect hefty fees from taxpayers who are already struggling with debt.

Fake payments with repayment demands: In this scam, criminals trick taxpayers into sending them their refund. The criminal steals or obtains a taxpayer’s personal data including their Social Security number or individual taxpayer identification number (ITIN) and bank account information and then files a bogus tax return and has the refund deposited into the taxpayer’s checking or savings account. Once the money is in the taxpayer’s bank account, the criminal calls the taxpayer, posing as an IRS employee who tells the taxpayer that there has been an error and that the IRS needs the money returned immediately or penalties and interest will result. This scheme often involves the taxpayer’s being told to buy specific gift cards in the amount of the refund.

The IRS never demands payment of taxes using a specific method. Taxpayers also have the right to question the amount of tax the IRS says they owe. Taxpayers who receive an unexpected refund and a call demanding a refund repayment 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 Forms W-2, Wage and Tax Statement, and other tax information. The IRS calls these scams business email compromise (BEC) or business email spoofing (BES). Two of the most common types of these scams are a gift card scam and a direct deposit scam.

The gift card scam uses a compromised email account to send a request to purchase gift cards in various denominations. In the direct deposit scheme, the criminal may have access to the victim’s email account (also known as an email account compromise). The scammer 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 scammer controls.

The IRS asks that the direct deposit and other BEC/BES variations be reported to the FBI Internet Crime Complaint Center. Form W-2 scams should be reported to phishing@irs.gov (Subject: W-2 Scam).

Ransomware: Also new to the list, ransomware takes advantage of human and technical weaknesses to infect a victim’s computer, network, or server. Malware, a form of invasive software that the user inadvertently downloads, tracks keystrokes and other computer activity. Once a computer or network is infected, ransomware looks for and locks critical or sensitive data with its own encryption. In some cases, entire computer networks can be shut down.

Victims often are unaware of the attack until they try to access their data, or they receive a ransom request in a pop-up window. The criminals usually use anonymous messaging platforms and demand payment in virtual currency such as bitcoin.

Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.

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