At HW&Co., we believe that a conversation can change everything. Talking about an issue can bring understanding; discussing a risk can help to avoid it.
In that vein, let’s talk about the IRS’ annual Dirty Dozen — its annual list of the top tax scams that are bilking thousands from unsuspecting people.
Over the next few days, we’ll present the scams that you need to know about, divided into four different categories:
- Pandemic-related scams
- Personal information cons
- Ruses focusing on unsuspecting victims
- Schemes that persuade taxpayers into unscrupulous actions
Read about them and please share them with your family and friends. We believe there is power in conversation, a power that can change everything.
1. Economic Impact Payment theft
A continuing threat to individuals is from identity thieves who try to steal Economic Impact Payments (EIPs), also known as stimulus payments. Most eligible people will get their payments automatically from the IRS. Taxpayers should watch out for these tell-tale signs of a scam:
- Any text messages, random incoming phone calls, or emails inquiring about bank account information or requesting recipients to click a link or verify data should be considered suspicious and deleted without opening.
- Be alert to mailbox theft. Frequently check mail and report suspected mail losses to Postal Inspectors.
- Don’t fall for stimulus check scams. The IRS won’t initiate contact by phone, email, text or social media asking for Social Security numbers or other personal or financial information related to Economic Impact Payments.
Taxpayers should remember that the IRS website, IRS.gov, is the agency’s official website for information on payments, refunds, and other tax information.
2. Unemployment fraud leading to inaccurate taxpayer 1099-Gs
Because of the COVID-19 pandemic, many taxpayers lost their jobs and received unemployment compensation from their state. However, scammers also took advantage of the pandemic by filing fraudulent claims for unemployment compensation using stolen personal information of individuals who had not filed claims. Payments made on these fraudulent claims went to the identity thieves.
The IRS reminds taxpayers to be on the lookout for receiving a Form 1099-G reporting unemployment compensation that they didn’t receive. For people in this situation, the IRS urges them to contact their appropriate state agency for a corrected form. If a corrected form cannot be obtained so that a taxpayer can file a timely tax return, taxpayers should complete their return claiming only the unemployment compensation and other income they actually received. See Identity Theft and Unemployment Benefits for tax details and DOL.gov/fraud for state-by-state reporting information.
When calling attention to issues, it’s always helpful to have suggestions for solutions. The IRS offers the following protection to help taxpayers:
IRS makes IP PINs available to all taxpayers – adding another layer of security
To help taxpayers avoid identity theft, the IRS this year made its Identity Protection PIN (IP PIN) program available to all taxpayers. Previously it was available only to victims of ID theft or taxpayers in certain states. The IP PIN is a six-digit code known only to the taxpayer and to the IRS. It helps prevent identity thieves from filing fraudulent tax returns using a taxpayer’s personally identifiable information.
Using an IP PIN is, in essence, a way to lock a tax account. The IP PIN serves as the key to opening that account. Electronic returns that do not contain the correct IP PIN will be rejected and paper returns will go through additional scrutiny for fraud.
Reducing fraud
The IRS and its Security Summit partners in the states and the private-sector tax community have made changes to help reduce identity theft-related refund fraud that are noticeable to the average person filing a return:
- Tax software providers agreed to strengthen password protocols. This is the first line of defense for these companies to make sure their products are secure.
- State tax agencies began asking for taxpayers’ driver’s license numbers as another way for people to prove their identities.
- The IRS limited the number of tax refunds going to financial accounts or addresses.
- The IRS masked personal information from tax transcripts.
Multi-factor authentication can help
It is important for taxpayers filing in 2021 to know that online tax software products available to both taxpayers and tax professionals will contain options for multi-factor authentication. Multi-factor authentication allows users to better protect online accounts. One way this is accomplished is by requiring a security code sent to a mobile phone in addition to the username and password used to access the account.
The IRS and its Security Summit partners have formed an information-sharing center that allows them to quickly identify emerging scams and react to protect taxpayers. The Identity Theft Tax Refund Fraud Information Sharing and Analysis Center PDF is now operational.
Also, check out the IRS’ recent A Closer Look column for more on how to be vigilant about tax scams. Visit Identity Theft Central and Tax Fraud Alerts for more information on how to protect against or report identity theft or fraud.
For more information, please visit the IRS website or reach out to an HW&Co. tax advisor.
Keep reading for more of the IRS’ Dirty Dozen List.
