The IRS just updated its annual list of “Dirty Dozen” tax scams for 2020 with a special emphasis on the unique threats presented by the COVID-19 pandemic. Tax scams are a perennial threat to taxpayers, but the current crisis affords scammers more opportunities to strike than ever before. While some demographics are historically vulnerable to tax scams, today, everyone is at risk of falling prey to them, thanks to the ever-changing nature of the public and private responses to the pandemic. Knowing what types of “Dirty Dozen” tax scams are popular right now and how to spot them can help you protect your personal finances and those of your business.
The IRS’s Dirty Dozen
Every year, the IRS releases a list of tax scams known as the “Dirty Dozen” that it advises taxpayers to watch out for. Scammers are constantly adapting their tactics to exploit new technologies, disasters, or other social changes, and the COVID-19 pandemic presents the opportunity of a lifetime for them. Scammers now have a dizzying array of attack surfaces to exploit and new tactics to do so. Taxpayers also have an added degree of fear and uncertainty that makes them more vulnerable to scammers than normal, making education about these threats vital.
Dirty Dozen Tax Scams in 2020
Check out the top twelve tax scams hitting American taxpayers in 2020 and how you can avoid falling prey to them.
Phishing scams involve scammers using a fake email that appears to be from a reputable source, in this case the IRS. The scammer wants to get you to click on the link or respond to it with your private information. The IRS has stated that it will never contact taxpayers via email to discuss any payment due to them or owed by them, including the Economic Impact Payment (EIP).
Fake charities are popular tax scams that become more common in the wake of a disaster. The far-reaching nature of the COVID-19 pandemic and ensuing economic challenges offers fertile ground for these scams to thrive. They will typically begin with a scammer initiating contact with their target while claiming to represent a charitable organization that has little online presence. Taxpayers can request a charity’s Employer Identification Number and run it through a free tool provided by the IRS to verify its legitimacy.
One common and effective form of scam involves an IRS impersonation. In this scam, a criminal pretends to be with the IRS and manages to obtain sensitive information from a taxpayer. The scammer may threaten the taxpayer over the phone and attempt to scare them into immediate compliance with their demands. The IRS says that its agents will never do this and that taxpayers should contact them directly to communicate any tax issues they are having.
Scams on Social Media
Social media scams typically take the form of a scammer impersonating a friend or close associate of the target. The scammer may send the target links to click or make an appeal to donate to a fake charity. A scammer can even hack a target’s account and send out malicious links to their contacts. To avoid these scams, add two-factor authentication to your social media accounts and don’t click on unknown links that have been sent to you.
While there are many more protections now against refund fraud than what existed in the past, refund theft is still possible. Scammers may file false returns to divert their victim’s tax returns to the wrong account. Scammers are also contacting taxpayers to extract information to steal their EIPs. Contact the IRS directly if you believe a scammer has stolen your return and visit their website to track the status of your EIP.
Senior Citizen Fraud
Seniors are a perennial target for tax scams, and the COVID-19 pandemic has only made them more vulnerable. While seniors overall are more aware of over-the-phone and internet scams, they are still more vulnerable to these than other demographics. Social media-based scams also represent a new threat targeting seniors. Seniors should contact the IR directly if they have questions about the status of their tax return or EIP, rather than giving out information over the phone or on the internet.
Scams on Immigrants
Immigrant communities are particularly vulnerable to tax scams, especially if the victims don’t speak English. They are susceptible to threats over the phone or online and may surrender information to a scammer in order to comply. They may also simply not understand what is being asked and may give out sensitive information to a scammer as a result. Non-English speakers are advised to ignore these calls, as they are not behaviors the IRS engages in.
Ghost Tax Return Preparers
A ghost tax return preparer will help their target file a tax return but won’t sign it with their Preparer Tax Identification Number (PTIN). A ghost tax return scammer may promise their victim a large refund only to falsely claim tax credits and may even talk them into committing illegal acts. However, the ghost preparer will have long disappeared by the time the IRS comes to ask the victim questions about the return. The IRS has tips that you can refer to when choosing a tax professional, as you will ultimately be responsible for whatever your preparer files.
Offer in Compromise Scams
Scammers may target their victims by promising to greatly reduce their tax obligations. While the IRS does this for some taxpayers through an Offer in Compromise (OIC), only 18,000 applications out of 54,000 were accepted during the 2019 fiscal year. The IRS offers a free tool that taxpayers can use to see if they qualify for an OIC.
After stealing a taxpayer’s bank account information and Social Security number or Individual Taxpayer Identification Number (ITIN), a scammer will make a payment to the victim’s bank account. The scammer will then pose as the IRS and threaten the victim with criminal penalties if they do not immediately return the cash. The scammer will then instruct the victim to purchase gift cards. Anyone who has questions about money they potentially owe to the IRS is advised to call them directly.
Business Email Compromise and Business Email Spoofing
In a Business Email Compromise or Business Email Spoofing attack, a scammer will gain access to or impersonate a business email. They may request that a business buy a certain amount of gift cards or will attempt to change an employee’s direct deposit information. The scammer may even use fake or forged corporate documents to lend themselves authority. Form W-2 scams can be reported to: firstname.lastname@example.org with the subject “W-2 Scam” while other violations can be reported to Federal Bureau of Investigation Internet Crime Complaint Center (IC3).
In a ransomware attack, a scammer will send a malicious link to the victim over email, social media, or SMS text. Once the victim clicks on the link, their computer downloads malicious software that effectively kicks them out. The victim is then provided with specific instructions to follow to pay the scammer a ransom, usually in cryptocurrency, to regain access to their computer. This threat can be mitigated by not clicking on suspicious links and by installing multi-factor authentication, many options of which are available for free through tax preparation software.
Protect Yourself and Your Business From Tax Scams
Anyone can become a victim of a tax scam, especially now, while everyone faces a level of uncertainty and fear. Unfortunately, even the most vigilant taxpayers can become the victim of a scammer. However, you can easily avoid today’s “Dirty Dozen” tax scams once you have an experienced tax professional who knows exactly how to defend against them. Contact Larry L. Bertsch, CPA & Associates today so we can protect your business from tax scams while helping you to obtain all of the tax benefits to which it is entitled.