IRS Imposters Among the 2006 "Dirty Dozen" Tax Scams

by Glenn Harrison

Here's the bad news about any unexpected good news you receive in an e-mail from the IRS (Internal Revenue Service): It's probably bogus. For example, the IRS will not contact you via e-mail, out of the blue, about a refund you didn't know you had coming.

But people fall for this scam again and again, says John Hiddleson, an IRS senior tax specialist in Milwaukee. Hiddleson has seen e-mails--with convincing IRS logos--that display a refund amount and a link you must click on to get the refund.

The link leads to a mock IRS Web page form that requires financial information, such as Social Security and bank account numbers, user ID, password, mother's maiden name, and the like. Victims enter this information, press "submit," and Presto! Another identity thief now has the means to make an account balance disappear.

The bogus IRS e-mail is an example of "phishing" in which scammers use an authentic-looking e-mail to trick recipients into supplying personal financial data used to commit identity theft.

Don't take the bait--it's expensive

Phishing is one of the 2006 "Dirty Dozen" tax scams, published annually by the IRS. Although phishing accounts for only a fraction--2%--of the Internet fraud committed each year, its sting is beginning to go deeper; the average loss reported by consumers in 2005 quadrupled over 2004, as reported by the National Consumers League (NCL) on its fraud.org site. The NCL stats also show that phishing was the scam most frequently reported by senior citizens.

Hiddleson offers a few clues that an e-mail may be from an IRS imposter:

• Tortured English: Most phishing e-mails the IRS traces lead outside the U.S. Look for grammar and spelling mistakes or unusual words and sentence structures. "We realize that sometimes government-eze from the IRS can be hard to read, but this is different," Hiddleson says.
• No forewarning: "The IRS does not make initial contact with taxpayers via e-mail," Hiddleson says. "Agents do correspond via e-mail, such as during some audit situations, but that doesn't happen unless you give us your e-mail address first."
• Your gut reaction: If it sounds too good to be true--it probably is.

Phishers exploit charity donors

Phishers also may pose as charitable organizations. Finding a list of a charity's donors isn't difficult, and criminals use the organization's identity to go phishing.

For example, they send e-mails telling donors that the charity has calculated the tax-deductible amount of their donations. Donors are asked to supply Social Security numbers or other personal data to retrieve the documentation they'll need to claim the tax deductions.

Of course, it doesn't take a professional thief to abuse the IRS's charitable donation rules. Taxpayers have long played loose with the donation amounts they claim. A common dodge is to donate a used vehicle to a charity and deduct the full Blue Book value.

This may be appropriate if the charity is using it as a working vehicle.

More often, however, charities collect used cars to sell them as salvage. In that case, the deduction is based on how much the salvage buyer paid for the vehicle.

A new law took effect for 2005 tax returns, directing the IRS to require more documentation for vehicle donations. For details about these donations, read the IRS publication "A Donor's Guide to Vehicle Donations."

Beware the disappearing tax preparer

1. Know where to find your tax preparer when it's not tax season. "We've actually heard of people who go to a truck stop, set up shop at a table in the restaurant, and offer to prepare taxes for truckers. And when filing season is over, that person is long gone," Lanser says. Be very careful about working with anyone who does business only during tax season. You need to know that if you get a letter from the IRS months after submitting your return, you'll be able to ask for your preparer's help if you need it.
   A new law took effect for 2005 tax returns, directing the IRS to require more documentation for vehicle donations.

2. Get referrals. Search for a tax preparer as you would a doctor or a lawyer: Ask people you trust if they've had good, long-term experience with a tax preparer.

   The most important reason to be careful about anyone you hire to do your taxes, Lanser points out, is that even if that person makes mistakes or breaks the law, it's you--the taxpayer--who is legally and financially responsible for what's on your tax return.

   That's also a good warning to heed when you see promotions for publications or seminars that promise to save you big money on taxes.

   Legitimate deductions are no secret

   "Never pay taxes again" is a common promise of tax scam promoters. "The IRS doesn't want you to know about this," is another. Don't believe claims that you can use your home-based business, your dependents, or a trust fund in some newfound way to avoid taxes. Legitimate deductions for these things aren't a secret. Read the IRS publication "Recognizing Illegal Tax Avoidance Schemes."

   Even if your tax preparer makes mistakes or breaks the law, you are legally and financially responsible for what's on your tax return.

   Hucksters may include some of the Dirty Dozen schemes in their publications and seminars. For example, a new entry on the 2006 list is the "zero wages" scam: Claim no income on your return, and justify it by filing a substitute W-2 that rebuts the income shown on an employer's W-2. Filers might try this on an amended return, hoping the IRS will substitute it for the original return.

   Zero-wages filers also might add references to obscure statutory or constitutional language they believe give them the right to sidestep paying taxes.

   John Hiddleson says these types of scams are rare, esoteric, and sometimes pretty darn funny, like the guy whose defense in court was that he didn't owe taxes on the grounds that he was participating in the federal Paperwork Reduction Act of 1995.

   "All such arguments get thrown out of court routinely. There's nothing to them," Hiddleson says.

   If you're unsure about the legitimacy of any e-mail, chat-room rumor, brochure, or other contact regarding taxes, the best thing you can do is check irs.gov or call your local IRS office. Not only can you find the truth there--you may alert the IRS to a criminal who can be shut down before scamming another victim.

   This is a fraudulent e-mail forwarded by a taxpayer to the IRS. It was traced to a server overseas. Note the awkward, officious language--a typical mark of a phishing scam. E-mails like this commonly lead to a mock IRS (Internal Revenue Service) Web page that asks for personal financial information. The data most likely would be used to steal the victim's identity.

   Online phishing letter

   

   Published January 15, 2007