CARL WATTS & ASSOCIATES

March 11, 2019

Troubles viewing this message? View in browser online here
Update on Tax Scams for 2019
You can report abusive tax preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit.

There are also more advanced phishing schemes targeting the personal or financial information available in the files of tax professionals, payroll professionals, human resources personnel, schools and organizations such as Form W-2 information.

These targeted scams are known as business email compromise or business email spoofing scams. Depending on the variation of the scam (and there are several), criminals will pose as:

  • a business asking the recipient to pay a fake invoice,

  • as an employee seeking to re-route a direct deposit, or

  • as someone the taxpayer trusts or recognizes, such as an executive, to initiate a wire transfer.


Criminals may use the email credentials from a successful phishing attack, known as an email account compromise, to send phishing emails to the victim’s email contacts.

Tax preparers should be wary of unsolicited email from personal or business contacts especially the more commonly observed scams, like new client solicitations.

Malicious emails and websites can infect a taxpayer’s computer with malware without the user knowing it. The malware downloads in the background, giving the criminal access to the device, enabling them to access any sensitive files or even track keyboard strokes, exposing login victim’s information.

Numerous data breaches across the country mean the tax preparation community must be on high alert to unusual activity, particularly during the tax filing season. Criminals increasingly target tax professionals, deploying various types of phishing emails in an attempt to access client data. Thieves may use this data to impersonate taxpayers and file fraudulent tax returns for refunds.

Here are some of the tools which you can use to report such schemes:

  • Report all unsolicited email claiming to be from the IRS or an IRS-related function to phishing@irs.gov .

  • If you've experienced any monetary losses due to an IRS-related incident, please report it to the Treasury Inspector General Administration and file a complaint with the Federal Trade Commission through their Complaint Assistant to make the information available to investigators.

  • Quick reference chart outlines how to report suspected tax fraud activity in different situations.

  • State ID Theft Resources - State information on what to do if you or your employees are victims of identity theft.

  • Employers and tax professionals should notify states of any disclosures of W-2s or other identity information by emailing StateAlert@taxadmin.org.


Employers are urged to put protocols in place for the sharing of sensitive employee information such as Forms W-2. The W-2 scam is just one of several new variations that focus on the large-scale thefts of sensitive tax information from tax preparers, businesses and payroll companies.

For those participating in these schemes, such activity can lead to significant penalties and possible criminal prosecution. Both the Treasury Inspector General for Tax Administration, which handles scams involving IRS impersonation, and the IRS Criminal Investigation Division work closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

The best defense for you as taxpayers is to remain alert and get in touch with a trustworthy tax professional whenever you are in doubt or suspect fraudulent conduct.

People still fall prey to tax scams in spite of numerous warning signals and consumer alerts all over the media. Thousands of people have lost millions of dollars and their personal information to tax scams.

Human ingenuity is a quality just as boundless in the unlawful trade of the scam experts and there is a steady stream of new and evolving phishing schemes as criminals work to victimize taxpayers throughout the year. Whether through legitimate-looking emails with fake, but convincing website landing pages, or social media approaches, perhaps using a shortened URL, the end goal is the same for these con artists: stealing personal information.


Taxpayers, businesses and tax professionals are warned to be alert for a continuing surge of fake emails, text messages, websites and social media attempts to steal personal information. These attacks tend to increase during tax season and remain a major danger of identity theft.

In one variation, taxpayers are victimized by a creative scheme that involves their own bank account. After stealing personal data and filing fraudulent tax returns, criminals use taxpayers' bank accounts to direct deposit tax refunds. Thieves then use various tactics to reclaim the refund from the taxpayer, including falsely claiming to be from a collection agency or the IRS.

In another version of the scam, criminals posing as debt collection agency officials acting on behalf of the IRS contacted the taxpayers to say a refund was deposited in error, and they asked the taxpayers to forward the money to their collection agency.

Or, the taxpayer who received the erroneous refund gets an automated call with a recorded voice saying he is from the IRS and threatens the taxpayer with criminal fraud charges, an arrest warrant and a “blacklisting” of their SS Number. The recorded voice gives the taxpayer a case number and a telephone number to call to return the refund.

Taxpayers who receive the refunds should follow established procedures for returning an erroneous refund to the agency (Tax Topic Number 161 - Returning an Erroneous Refund) and to discuss the issue with their financial institutions because there may be a need to close bank accounts. Taxpayers receiving erroneous refunds also should contact their tax preparers immediately.

Because this is a peak season for filing tax returns, taxpayers who file electronically may find that their tax return will reject because a return bearing their Social Security number is already on file. If that’s the case, taxpayers should follow the steps outlined in the Taxpayer Guide to Identity Theft.


Taxpayers unable to file electronically should mail a paper tax return along with Form 14039, Identity Theft Affidavit, stating they were victims of a tax preparer data breach.

There is also a warning against unethical tax return preparers, known as ghost preparers.

By law, anyone who is paid to prepare or assist in preparing federal tax returns must have a valid 2019 Preparer Tax Identification Number, or PTIN. Paid preparers must sign the return and include their PTIN.

But ghost preparers do not sign the return. Instead, they print the return and tell the taxpayer to sign and mail it to the IRS. Or, for e-filed returns, they prepare but refuse to digitally sign it as the paid preparer.

Similar to other tax preparation schemes, dishonest and unscrupulous ghost tax return preparers look to make a fast buck by promising a big refund or charging fees based on a percentage of the refund. These scammers hurt honest taxpayers who are simply trying to do the right thing and file a legitimate tax return.

Ghost tax return preparers may also:

  • Require payment in cash only and not provide a receipt.

  • Invent income to erroneously qualify their clients for tax credits or claim fake deductions to boost their refunds.

  • Direct refunds into their own bank account rather than the taxpayer’s account.

You should always review your tax return carefully before signing and ask questions if something is not clear. And for any direct deposit refund, you should make sure both the routing and bank account number on the completed tax return are correct.
TOP
www.carlwatts.com
office@carlwatts.com
Washington DC
tel/fax 202 350-9002