Tax season may be behind us, but scammers aren't about to give up on a lucrative revenue streams. And those revenue streams involves scamming unsuspecting individuals, posing as the Internal Revenue Service (IRS).
The scams have been used for decades, with the onset of the internet only making it easier for criminals. While the first IRS scam was reported back in 1946, since then the scams those impersonating the IRS have exploded.
As of 2022, the Federal Trade Commission (FTC) found in a study that fraud reports came in at 2.4 million for the year, though this was down from 2.9 million the year before. However, the total was far higher, with $8.8 billion in total reported losses in 2022, passing $6.1 billion in 2021.
That's why it's always important to stay on top of the latest scams to avoid falling victim. Recently, there have been several scams that pose a large threat to the safety of Americans' finances. Today let's go over the top scams the IRS currently warns Americans about, and how to protect yourself against them.
Unclaimed funds
A popular scam reported by the IRS lately involves fraudulent mailings offering unclaimed funds to taxpayers. Scammers will use multiple contact methods, from actual mail to phone calls, and even text messages. These scammers pretend to be the government agency, sending official-looking documents stating they are entitled to a large amount of money. This could be an inheritance, or even just some tax benefits left unclaimed.
From there, scammers will typically ask for personal information. This will likely include Social Security numbers, bank accounts details, or other details disguised as helping to release the funds. They'll even go so far these days as asking for photos of your identification. Yet once victims provide the requested information, scammers disappear leaving these victims at risk of either financial loss, or even identity theft.
To protect yourself, it's important to note the IRS will never initiate contact with taxpayers through emails, texts, or social media messages. Furthermore, the agency will never request personal or financial information through these channels. The IRS typically communicates through mail, or by phone.
The IRS reminds Americans to never click unsolicited communication as it could hold malware. Instead take a photo and send the email or a copy to the IRS.
Employee Retention Credit (ERC) Scams
Another scam going around is the Employee Retention Credit (ERC) scam. This scam is difficult because it comes from a legitimate program that was designed to help eligible employers retain employees during the COVID-19 pandemic. However, scammers seized yet another opportunity to exploit Americans, targeting both employers and employees.
The ERC is a refundable tax credit for businesses who continued to pay employees during the shut down due to the COVID-19 pandemic, or had significant declines in gross receipts. The period for claiming the amount is between Mar. 13, 2020 to Dec. 31, 2021. Taxpayers can therefore claim an original or amended employment tax return for a time period that falls within these dates.
In this case, the scammers pose as IRS agents, offering to help taxpayers file for the ERC. By helping, they state they'll expedite the ERC application process to get you both a larger credit amount, or get your money to you faster. All they ask in return is a (quite large) fee. But here's the thing, while employers can claim the ERC as a business, the credit is unavailable to individuals in the first place.
Again, these fraudsters have been contacting individuals increasingly through text, social media, and other untraditional means. So the IRS warns to never click any links or provide personal information, and again forward information to the IRS.
Phishing or smishing Scams
Finally, phishing scams have been around for a while, but remain a top threat for Americans, says the IRS. A phishing (or smishing if it's through text) scam occurs when fraudsters try and trick taxpayers into revealing personal and financial information. This usually occurs through unsolicited emails, texts, or phone calls as they attempt to disguise themselves as IRS agents, or financial institutions.
In most cases, there is an urgent need for taxpayers to click a link to fill in information. Here it will take you to a fake website that will closely resemble the official IRS page. From there, the victim is asked to fill in their personal and financial information on the website, allowing the scammer to steal it. These scammers then go on to commit identity theft, drain bank accounts, or file fake tax returns.
The IRS warns there continues to be a theme around COVID-19, and usually come from a trusted source such as a colleague, bank, credit card company, cloud storage provider, or directly from the IRS. Scammers have taken time to identify their victims in recent years, making the phishing scams even more believable, evening conning tax professionals.
One very successful scam involved potential clients exchanging emails with tax professionals, then providing an attachment claiming it was their tax information. Once the link or document was opened, malware downloaded onto computers in many cases stealing all client accounts. In some cases this led to remote access trojans (RAT), allowing scammers to identify pending tax returns, complete them, and file them electronically, changing the bank account information to steal the refund. More recently, some scammers have even held data ransom.
Protect yourself
The big problem for Americans is that scammers continuously change their methods. You'll never know when the next scam will come, and that's what makes it so terrifying. While fewer Americans are being taken in, this narrowed focus on more money from less people has brought in billions for scammers in the last year.
Some helpful tips posed by the IRS includes never giving out personal or financial information. Further, to report unsolicited emails or texts from the IRS, and only use the IRS website to access your online account. If you're a tax professional or even just someone filing your taxes, make sure to identify the third-party company helping with your taxes, or providing you with information.
From there, simply stay up to date with the latest tax scams on the IRS website, use strong passwords and security questions, and keep your software up to date. And if you're ever unsure about something, call the IRS directly.
By following these tips, you can help protect yourself from tax scams and keep your personal information safe.
On the date of publication, Amy Legate-Wolfe did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
