Personal Finance: IRS and Fraudsters Both Want Your Money At Tax Time

Albert Einstein said that the hardest thing in the world to understand is the income tax. But Einstein didn’t have to run the gauntlet of scammers and fraudsters that make tax time even more complex and potentially treacherous. Here’s our annual look at common scams aimed at taxpayers and how to defeat them.

First, a little good news. The IRS reports that incidents of identity theft declined by 40 percent in 2017 versus the year earlier and 65 percent since 2015, thanks in part to increased awareness and diligence on the part of taxpayers. The bad news: crooks are working overtime to refine old cons and develop new ones, necessitating constant vigilance to guard against falling victim.

One of the latest twists involves fraudulent refunds sent to taxpayers’ real bank accounts. After stealing enough information to file a tax return in the victims’ names and directing a refund to their actual bank account, the swindlers then perpetrate one of several schemes to get their hands on the loot.

In one version of the con, the fraudster poses as an agent of a debt collector and claims to be working on behalf of the IRS to reclaim a refund sent in error. The victim is told to return the money to the bogus agency via wire or prepaid debit card.

In a variant of the scheme, the perpetrator uses an automated phone message purporting to be from the IRS demanding return of the refund and threatening arrest or placing the victim’s Social Security number on a non-existent “blacklist.” The automated call includes a phony case number and a telephone number to call to make payment arrangements.

Both of those cons have increased dramatically this tax year.

Increasingly, the information necessary to file the false tax returns is coming from breaches in the computer systems of legitimate tax preparers. The IRS is warning tax professionals to implement heightened security measures to safeguard client data and personally identifiable information. Taxpayers are advised to inquire of their tax preparers regarding enhanced security precautions to minimize the risk of data loss.

Although the incidence of straight identity theft leading to stolen refunds has declined, the IRS warns that there is a potential for an uptick this year due to the massive data breach at Equifax that may have affected 143 million Americans. In general we are more aware, but now there are many more potential victims in the pool.

Telephone scams are back this year as well, but a particularly detestable iteration has reared its ugly head. Callers claiming to be IRS agents are targeting recent immigrants, sometimes in their own languages. In many cases, the callers have altered their caller ID display to convince the target that the IRS is indeed calling. The thieves tell victims they owe back taxes and then demand payment, again by wire or debit card. In the most despicable cases, targets are threatened with deportation or arrest.

Be on guard against those and other potential scams. The IRS will never demand immediate payment by wire, gift card or debit card. It will not contact you by phone, social media or email to initiate action in a legitimate inquiry. In general, the agency informs taxpayers of pending matters by U.S. mail, and you can easily verify the veracity of the claim. Never click on websites in unsolicited emails, and hang up energetically on any unexpected caller claiming to be from the IRS.

If you believe you have been targeted by a tax scammer, contact the Treasury Inspector General at 800-366-4484.

Christopher A. Hopkins, CFA, is a vice president and portfolio manager for Barnett & Co. in Chattanooga.

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