Who says you can’t teach a tax scammer new tricks?
One of the hottest new scams out there involves fraudsters who file phony tax returns in the hopes of getting a relatively skimpy tax refund. They’re no longer just out to steal thousands of dollars by tapping into generous tax credits.
“For at least the last two years, we’ve seen fraudsters try to lodge low dollar refund claims hoping that those smaller numbers will encounter less scrutiny when being processed by tax authorities,” said Andy Phillips, director of H&R Block’s Tax Institute.
“We’re talking about refunds that are lower than a few hundred dollars in most cases,” Phillips said.
Even after writing about tax refund fraud for roughly 10 years, I am amazed at how nimble these crooks continue to be. Back in 2011, I was one of the first to report a scheme where fraudsters found Social Security numbers of the deceased online and used that information to file phony returns and collect fraudulent refund checks.
As a crackdown hit that arena, the crooks adjusted and tried new tricks.
Tax refund fraud centers on using stolen ID information and it’s often run by large criminal enterprises who have an elaborate system in place.
One group can steal the Social Security numbers and ID information, while another crafts legitimate-looking but phony tax returns. And then another group will handle ways to funnel the stolen tax refund money.
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The Internal Revenue Service estimates that it paid out at least $110 million in identity theft related tax refund fraud in 2017, and at least $1.6 billion in identity theft related tax refund fraud in 2016, according to a U.S. Government Accountability Office study in 2019. The IRS has said that better data from returns and information about schemes has lead to better filters to spot identity theft tax returns.
A Security Summit – an unprecedented partnership between the IRS, state tax agencies, and the private-sector tax industry – came together in 2015 to form a coordinated front against these tax scams.
The latest scheme involving small tax refunds reminds me of how thieves will test stolen credit card information to confirm a live account by making a few small charges, say $10 or less. If those go through, they’re typically off to the races and ready to buy the big screen TVs and the like.
Why crooks like small tax refunds, too
How can a fraudulent tax refund of only a few hundred dollars make sense for the crooks?
If a tax refund is small enough to slide under the radar, Phillips said, crooks may attempt to craft similar returns in the next few years to build a history and make those future returns look even more legitimate. They might be able to steal refund cash for a few years in a row.
It’s possible that they could be using stolen ID information for someone whose income is so low that they’re not even required to file tax returns. As a result, it might take even longer to spot the fraud.
“The fraudsters continue to evolve and seek new opportunities,” Phillips said.
Consumers in their 60s, 70s and 80s – who are often targets of aggressive phone calls where con artists impersonate government agencies – could be tricked into handing over their Social Security numbers and other information, too, he said.
“They may be more likely to have their personal information out there in the wild,” Phillips said.
Why someone who prepares tax returns is a target
But consumers aren’t the only targets. This year, fraudsters are increasingly zeroing in on tax professionals, too.
“Already, nearly two dozen tax practitioner firms have reported data thefts to the IRS this year,” according to an alert from the IRS dated Feb. 14.
Tax professionals are being warned once again to beware of phishing scams that are commonly used by thieves to gain control of their computers. And they’re asked to step up their use of multifactor authentication when using tax software products.
“Thieves may claim to be a potential client, a cloud storage provider, a tax software provider or even the IRS in their effort to trick tax professionals to download attachments or open links,” the IRS said.
We all have to watch out for any so-called urgent messages – especially ones that imply there are issues that demand immediate action.
Tax identity theft is an ongoing threat.
“You may not find out it has happened until you try to file your real tax return and the IRS rejects it as a duplicate filing,” according to an alert by the Federal Trade Commission.
The IRS can reject a return for e-filing due to a simple math error or typo, which can be easily fixed. You would receive an explanation of why your return was rejected by the system.
But it’s also possible that the IRS system rejected your return because another return using your ID was already filed by criminals.
If your e-filed return is rejected because of a duplicate filing under your Social Security number, you’d need to complete IRS Form 14039, Identity Theft Affidavit. You’d use a form at IRS.gov, print it, and then attach the form to your paper tax return and you’d have to then mail your return according to instructions.
To protect yourself, the FTC and other watchdogs recommend:
- Do not believe anyone who calls and claims to be from the IRS, Social Security or your local police department and then demands that you hand over personal information on the spot.
- Don’t verify the last four digits of your Social Security number, your bank account information or even your date of birth when someone is making demands.
- Pay attention to warning signs, such as the IRS notifying you that more than one tax return has been filed using your ID.
- An impostor may use aggressive phrases such as “please do not interrupt me while I am speaking.”
- Do not click on any links or attachments in suspicious emails.
- Protect your Social Security number throughout the year.
- Don’t leave tax return information out in the open or tucked in a backpack or briefcase that’s left in your car.
- File your tax return as early in the tax season as you can to beat ID thieves to the punch.
- Do not file your tax return from a coffee shop or other public area. Use a secure internet connection if you file electronically. If sending a paper form, mail your tax return directly from the post office.
- Research a tax preparer thoroughly before you hand over personal information.
- Check your credit report at least once a year for free at annualcreditreport.com. Make sure no one has opened a new account in your name.
Contact Susan Tompor: 313-222-8876 or email@example.com. Follow her on Twitter@tompor. Read more on business and sign up for our business newsletter.