Ben Franklin famously said that nothing is certain but death and taxes. The IRS might add a corollary to that aphorism regarding scams to defraud taxpayers. They are always with us and this year it seems they have reached epic proportions.
Two particularly pernicious and well- organized frauds are targeting the public as tax filing season moves into full swing. And despite the seemingly endless annual warnings, more victims than ever are falling for the scams this year, thanks to an escalation in volume and sophistication.
Identity theft tops the IRS watch list of dirty tricks for 2016. In general, these schemes seek to steal or cajole personal information that can be used to impersonate legitimate taxpayers. Scammers use this misbegotten info to file phony tax returns in the name of actual taxpayers in order to generate and intercept refunds before the legitimate return is filed.
According to IRS data, phishing schemes (fraudulent emails) and malware infestations have increased 400 percent versus last year. The attacks have grown so prevalent that law enforcement has coined an acronym to describe them: stolen identity refund fraud or SIRF.
This gambit begins with an authentic-looking email purporting to be from the IRS seeking additional information or demanding payment of an unpaid tax liability. Unsuspecting victims that provide the requested information then find themselves the victims of identity fraud when they file their real returns. Often, malicious software is installed on the user's computer, providing access to a treasure trove of personal data that can be used to create false returns or sell to other identity scammers.
No one, it seems, is immune from the increasingly clever schemes. Even tax preparers have been targeted, in some cases inadvertently surrendering their online sign-in credentials to IRS portals reserved for tax professionals.
Number two on the IRS hit list is an aggressive variant of the old phone scam. Callers impersonating IRS agents contact taxpayers with claims of unpaid tax obligations and seek to convince the individuals to remit payment. And while telephone fraud is as old as the dial tone, these bottom feeders have stepped up their game this year.
The Internal Revenue Service reports that over one million people have been contacted by telephone fraudsters since 2013. Sadly, 5,000 have fallen victim to the tune of $29 million as the perpetrators have grown increasingly accomplished. Many have hacked their caller IDs to mimic the IRS or other U.S. Government agencies on the recipient's phone. Use of automated robo-calling has magnified the quantity of attacks. As if telemarketing wasn't bad enough.
Meanwhile, scammers have grown more aggressive. Callers frequently threaten victims with prosecution and imprisonment if payment is not forthcoming. Others offer the prospect of juicy refunds if certain additional information is supplied. The callers then inveigle intimidated victims to remit funds through prepaid debit cards or wire transfers.
In response to the stepped up attacks, the IRS is teaming up with professional tax preparers and various state authorities in a coalition known as the Security Summit. Additional security measures are being implemented, including stronger verification at online tax prep sites like Turbotax and Taxslayer. And the U.S. Department of Justice is aggressively targeting suspected cons with additional enforcement tools.
But the first line of defense is to avoid being scammed. Remember that the IRS never makes initial contact via phone, email, text or social media. If you are the recipient of any such communication, do not respond and immediately report the incident to the Treasury Department Inspector General at www.treasury.gov/ tigta/.
Paying taxes is no fun, but paying taxes you don't owe is worse and is completely avoidable.
Christopher A. Hopkins, CFA, is a vice president and portfolio manager for Barnett & Co. in Chattanooga.