As the world fights through a devastating pandemic, tax scams and schemes have not stopped. In fact, they have grown. No theme is too low for these nefarious designers of deceit. The IRS tracks and releases a list of the most prominent scams each year. Taxpayers and tax professionals should know them well and how to avoid becoming a victim. Pandemic-related scams lead this year’s IRS “Dirty Dozen” list.
The IRS has separated this year's "Dirty Dozen" into four categories, one of which is pandemic-related scams like Economic Impact Payment theft. This is the category we will cover today.
The IRS urges us all to be on guard, especially during the pandemic, not only for ourselves, but also for other people in our lives. You can review the "Dirty Dozen” list in a special section on IRS.gov.
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. However, scams can still occur. Be on the lookout 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 with you by phone, email, text, or social media asking for Social Security numbers or other personal or financial information related to EIPs.
Remember that the IRS website, IRS.gov, is the agency's official website for information on payments, refunds, and other tax information.
Unemployment Fraud Leading to Inaccurate Taxpayer 1099-Gs
Because of the COVID-19 pandemic, many lost their jobs and received unemployment compensation from their state. However, scammers took advantage of the pandemic by filing fraudulent claims for unemployment compensation using stolen personal information of individuals who had not filed claims. Sadly, payments made on these fraudulent claims went to the identity thieves.
Be on the lookout for receiving a Form 1099-G reporting unemployment compensation you didn't receive. For people in this situation, the IRS urges you to contact your appropriate state agency for a corrected form. If a corrected form cannot be obtained so you can file a timely tax return, complete your return claiming only the unemployment compensation and other income you actually received. See Identity Theft and Unemployment Benefits for tax details and DOL.gov/fraud for state-by-state reporting information.
Additional Protection to Help Protect Taxpayers
IRS makes IP PINs available to all taxpayers – adding another layer of security
To help you 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 your 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.
The IRS and its Security Summit partners in the states and the private-sector tax community have helped reduce identity theft-related refund fraud 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 asked 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 besides 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.
Along with the IRS, The Tax Warriors® at Drucker & Scaccetti go to great lengths to protect your private information. If you have questions about the security of your personal information and how you can be best protected from these and other tax scams, contact your tax advisor.