FTC: IRS imposter complaints up more than 2,300% in 2014

The scams that plague the IRS were on display again this week as the Federal Trade Commission said the number of consumer complaints about criminals impersonating IRS officials was nearly 24 times more than in 2013.

"We've seen an explosion of complaints about callers who claim to be IRS agents but are not," said Jessica Rich, director of the FTC's Bureau of Consumer Protection in a statement. "IRS employees won't call out of the blue and threaten to have you arrested or demand specific methods of payment."

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According to the FTC, IRS impersonation scams typically consist of an individual contacting a consumer by phone, claiming that they are an IRS agent and that the consumer owes the IRS money. The callers suggest to consumers that they pay by wiring money or loading money on a pre-paid debit card. The callers often threaten arrest or legal action, and their calls may appear to originate from Washington, D.C. phone numbers; scammers may even know a consumer's full or partial Social Security number, lending credibility to the scam. The nearly 24-fold increase in complaints related to IRS impersonation indicate that scammers are using this technique against consumers across the country.

IRS impersonation scams prey on consumers' lack of knowledge about how the IRS contacts consumers. The IRS will never call a consumer about unpaid taxes or penalties the agency typically contacts consumers via letter. If consumers get a call purporting to be from the IRS, they should never send money once it's sent to the criminal, it is impossible to retrieve. They should instead hang up and report the scam to the FTC and to the Treasury Inspector General for Tax Administration at tigta.gov, the FTC stated.

Just last week the IRS said phone scams in fact for the first time top the Dirty Dozen scam list compiled annually by the IRS and catalogues a variety of common scams taxpayers may encounter any time during the year.

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Phone scams top the list this year because it has been a persistent and pervasive problem for many taxpayers for many months. Scammers use fake names and bogus IRS badge numbers. They often leave "urgent" callback requests. They prey on the most vulnerable people, such as the elderly, newly arrived immigrants and those whose first language is not English. Scammers have been known to impersonate agents from IRS Criminal Investigation as well.

The IRS said that the Treasury Inspector General for Tax Administration (TIGTA) has received reports of roughly 290,000 contacts since October 2013 and has become aware of nearly 3,000 victims who have collectively paid over $14 million as a result of the scam, in which individuals make unsolicited calls to taxpayers fraudulently claiming to be IRS officials and demanding that they send them cash via prepaid debit cards.

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Meanwhile the FTC noted another IRS scam scourge: Tax identity theft which was the most common form of identity theft reported to the FTC in 2014.

Tax identity theft typically happens when a scammer files a fraudulent tax return using a consumer's Social Security number in order to receive a refund. The year 2014 marks the fifth consecutive year in which tax-related identity theft topped the list of identity theft complaints, with tax identity theft accounting for nearly a third of all identity theft complaints to the FTC.

Watchdogs at the Government Accountability Office in September issued a report that looked at the IRS identity theft problem and made a few recommendations on how to fight the massive fraud that is taking place right now. The first and possibly most effective solution is to stop the IRS practice of what the GAO called "looking back" which matches returns with W-2 information after tax forms are filed.

"IRS currently cannot do such matching because employers' wage data (from Form W-2s) are not available until months after IRS issues most refunds. Consequently, IRS begins matching employer-reported W-2 data to tax returns in July, following the tax season. If IRS had access to W-2 data earlier--through accelerated W-2 deadlines and increased electronic filing of W-2s--it could conduct pre-refund matching and identify discrepancies to prevent the issuance of billions in fraudulent refunds," the GAO stated.

For example, in 2012, the IRS received more than 148.3 million tax returns and issued more than $309.6 billion in refunds to 110.5 million taxpayers. By March 1, 2012 IRS had issued about 50% of all 2012 refunds, but did not have access to most of the 2012 W-2 data verified by the Social Security Administration.

According to the GAO, in 2014, the Department of the Treasury proposed that Congress accelerate W-2 deadlines to January 31. "However, IRS has not fully assessed the impacts of this proposal. Without this assessment, Congress does not have the information needed to deliberate the merits of such a significant change to W-2 deadlines or the use of pre-refund W-2 matching," the GAO stated.

Another fix the GAO proposes is requiring smaller companies to electronically file W-2s. Currently, employers who file 250 or more W-2s annually must e-file those forms. The IRS is generally prohibited from requiring those filing fewer than 250 returns annually to e-file. The Social Security Administration (SSA) estimated that to meaningfully increase W-2 e-filing, the threshold would have to be lowered to include those companies filing 5 to 10 W-2s, the GAO stated. In addition, SSA estimated an administrative cost savings of about $0.50 per e-filed W-2.

Part of the overall issue is that the IRS is under pressure to issue refunds quickly. The IRS is required by law to pay interest if it takes longer than 45 days after the due date of the return to issue a refund. The IRS tells taxpayers to anticipate their refunds generally within 21 days after filing and actively tries to meet this target. For the tax year 2013, IRS reported that for tax returns filed through early March, taxpayers received refunds an average of 9.6 days after filing, the GAO stated. Delaying those refunds is likely to burden taxpayers, according to IRS.

Taxpayers who file early and who are financially dependent on a refund, such as low-income taxpayers receiving refundable credits, could be hurt. For example, according to the National Taxpayer Advocate, delayed refunds would have a detrimental effect on low-income taxpayers who use their tax refunds to pay winter utility bills.

According to the GAO analysis, the changes would also result in a permanent shift in the annual cycle of refunds on which some taxpayers depend. Once the change is made, the time interval between annual refunds will be the same length as it is now; however given the billions in dollars of successful IDT refund fraud, IRS must strive to stay one or more steps ahead of identity thieves, or the risk of issuing fraudulent IDT refunds could grow. Staying ahead of identity thieves will require a significant resource investment from IRS as it strengthens and develops new tools, the GAO stated.


Michael Cooney

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