IRS Scammers Worked Overtime During Tax Season. Is Your Business Safe?

Business.com / Finances / Last Modified: February 22, 2017

Understanding how IRS scams work and how to safeguard your personal information so you can keep your business safe.

You’re not the only one who worked hard to submit your tax return on time. IRS scammers are busy this time of year, too.

Between 2011 and 2014, the IRS paid out more than $5.8 billion in fraudulent refunds as a result of identity theft.

According to CNBC, the IRS expects tax refund fraud to hit an eye-popping $21 billion in 2016.

If an IRS scammers gets your personal or business tax information, you could see significant delays in getting your refund, or end up kissing it goodbye.

How IRS Scams Work

IRS scammers sometimes obtain personally identifiable information, such as your Social Security number, or your business Employer Identification Number (EIN). They do this through phishing scams, by stealing your mail or by swiping records from banks, insurers, healthcare providers, business partners, or other companies with which you conduct financial transactions.

Once they have your taxpayer ID, they file a tax return and collect a refund based on the information provided.

In other cases, IRS scammers use more direct and malicious tactics. One common scam, for instance, involves calling taxpayers and telling them the IRS has a warrant for their arrest. Here’s how it works:

  • A scammer or group of scammers obtains a large number of phone numbers in a particular geographic area. Online calls, made using voice-over-Internet-protocol (VoIP) technology, make it possible for scammers to obtain phone numbers almost instantly without any sort of credit or background check.
  • Using those phone numbers, scammers call personal and business numbers throughout the local area. They may operate using data they’ve stolen, personal information they’ve purchased on the black market or lists of numbers from an everyday phone directory.
  • When callers pick up, they hear a recorded message telling them that the IRS has a warrant and plans to arrest them for taxes owed. To remedy the situation, taxpayers are told they can call a particular phone number.
  • Upon calling the number, scammers sometimes tell victims to wire money to the IRS to avoid arrest. They’ve also asked victims to purchase prepaid debit cards and then pay the IRS using those debit cards.
  • Once victims realize they’ve been scammed, they try to call the number back, or they try to call the number that left the original recorded message. Usually, it’s too late; the scammers have canceled the phone numbers and moved on to another area.

Related Article: Payday for Uncle Sam: 5 Tax Tips For Small Business Owners

How to Avoid Being Scammed

The consequences of identity theft stretch much further than tax refund fraud alone. For this reason, many individuals review ID theft protection services, start monitoring their credit and sign up for alerts related to suspicious activity.

You can also review one free credit report from each of the three bureaus, Equifax, Experian and TransUnion,  once each year. Checking one report from one bureau every four months gives you the chance to review your credit at least three times per year.

For example, you can review Equifax in April, Experian in August and TransUnion in December. You don’t get the benefit of receiving alerts related to suspicious transactions, but it’s better than doing nothing.

Related Article:13 Genius Tax Write-Offs You Need to Take Advantage Of

In addition to monitoring your credit report, follow these tips to keep your personal information out of the hands of IRS scammers:

  • Avoid carrying documents that display your Social Security number or business EIN.
  • Never share your taxpayer ID with someone who emails you or calls you unless you unconditionally trust the source.
  • Never call a phone number provided in an email or voicemail, and never click a link in an email. Instead, look up the main IRS customer service number and call the agency directly.
  • Never answer a voicemail claiming to be IRS-related unless you’ve first received a written notice. By law, the IRS is required to mail a notice related to any tax issues.
  • Work with a tax professional who can help you respond to any notices or tell you what to do if you become an IRS scam victim.

If You Think You’ve Been Scammed

If you receive a notice from the IRS rejecting your tax return and claiming that you’ve already filed, fill out IRS Form 14039 and mail it to the IRS along with copies of your driver’s license, your Social Security card and the notice you received from the agency. 

In some cases, the IRS stops a suspicious tax return before it’s filed under your name. If this happens, you’ll get a Letter 5071C, which will ask you to verify your ID with the IRS via their Identity Verification Service or by calling the phone number in the letter. To confirm you identity, you’ll need the following information:

  • Your name, contact information and date of birth.
  • Your Social Security number or individual taxpayer identification number.
  • Last year’s tax return and supporting documents, such as W-2s, 1099s, or Schedules A and C.

Always remember that the IRS will contact you via snail mail and not over the phone or through email. If you’ve mistakenly wired money to an IRS scammer or purchased a prepaid debit card, file a police report as soon as possible.

Related Article:White Collar Criminals: The Most Famous Tax Frauds in History

Also, keep in mind that if scammers have tried to file a tax return in your name, they also have enough information to commit other acts, such as opening a credit card or getting a loan using your personal information. Also, contact each of the three credit bureaus and put a freeze or fraud alert on your credit report:

  • A freeze allows no one to open new lines of credit in your name, including you, unless you provide a personal identification number (PIN).
  • A fraud alert allows lenders or other interested parties to review your credit report provided they take extra steps to confirm your identity.

Protect Your Business

Dealing with the fallout of an IRS scam takes precious time, and often money, away from growing your business. By understanding how scams work and safeguarding your personal information, you can keep your business safe from identity theft.

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