Although tax season is over for the majority of taxpayers, IRS tax scam season remains in full swing. A typical such scam works like this: Joe Taxpayer gets a phone call from a supposed IRS agent demanding immediate payment of back taxes. The agent says that an audit of previous years’ tax returns resulted in an assessment of several thousand dollars. He also provides a badge number, a case number, and even references the last 4 digits of the taxpayer’s social security number. The caller then warns that hanging up on the call or ignoring the request for payment will result in arrest, the assessment of additional penalties, and seizure of assets. Joe Taxpayer is then instructed to make payment via a wire transfer or through the purchase of a gift card.
According to a recent IRS report regarding phone scams, “the Treasury Inspector General for Tax Administration (TIGTA) announced they have received reports of roughly 896,000 contacts since October 2013 and have become aware of over 5,000 victims who have collectively paid over $26.5 million as a result of the scam.” Over the last few years, this fraudulent scheme has become a cottage industry in itself. However, examining these calls in more detail provides an excellent opportunity to learn more about how the IRS operates and may help you in detecting and avoiding such scams in the future.
Firstly, the IRS will not call you to initiate contact. One common theme amongst these scam calls is that the incoming phone number is spoofed so that the caller ID reads “Washington D.C.” Alternatively, the scammers may use the phone number of the local courthouse and insist that the police will be summoned if you don’t make payment immediately. These tactics are the first step in establishing a sense of legitimacy for the call, but don’t be fooled. As a matter of policy, the IRS corresponds with taxpayers by regular mail via the address shown on your most recently filed tax return (or a change of address form, if applicable). The IRS will NEVER attempt to contact you by email.
Let’s now focus our attention to the credentials provided by the caller. The badge number and case number are typically random letters and numbers. As for the last four digits of the social security number, this is information that may have been leaked through various governmental and private data hacks. In 2015 alone, Scottrade, T-Mobile, and BlueCross Blueshield were the targets of internet attacks in which the scammers obtained the private information of 4.6 million, 15 million, and 10 million customers, respectively. The government is also not immune from such hacks as the Office of Personnel Management leaked the data of 22 million public employees in 2015. Unfortunately, entire social security numbers may be included amongst the information leaked, but it is most often the last 4 digits that are compromised. Accordingly, although a scammer may be able to recite digits from your social security number, this should not serve as confirmation that the call is legitimate.
Perhaps the most intimidating aspect of these calls is the threat of police intervention, arrest, a lawsuit in the local court, etc. The important thing to remember here is that the IRS does not initiate court cases. In fact, they don’t need to. The IRS has sufficient legal authority to assess taxes, seize assets, garnish wages, and/or place liens on property without court action or involvement of the police. It’s actually the taxpayer that would typically petition the Tax Court or a district court to contest an assessment or obtain a refund of taxes paid. Therefore, the mere mention of courts, police, and/or lawsuits should be a red flag indicating that the call did not originate with the IRS.
A final red flag is often the payment method that the supposed IRS agent insists that you use. They typically demand a wire transfer, the purchase of a gift card, or other method of payment that is quick but irreversible. The scammers rely on the fact that once you wire money to another account, it cannot be recovered. Even if the bank is willing to investigate the issue, they will often find that the money had already been withdrawn from the account to which it was transferred, thereby offering no way to recover the funds. Likewise, once gift card information is shared over the phone, the money on the card can be withdrawn online in seconds. Once this is done, there is unfortunately no recourse for the purchaser of the gift card.
One way to combat these scams is to hang up and call the IRS directly via the phone number provided on www.irs.gov (800-829-1040). By speaking directly with an IRS representative, you will be able to confirm whether there are any outstanding taxes on your account. Alternatively, you can reach out to Lighthouse Financial Services at (714) 572-8900 as we can look into the issue and reach out to the IRS on your behalf if necessary.