Tax Scam Trends

tax scams

Those who have read Lewis Carroll’s, Through the Looking Glass, may recall the Red Queen. This character explains to Alice that she must run as fast as she can merely to stay in one place. This is the origin of the Red Queen Hypothesis, which theorizes that living things adapt and evolve, not to gain an evolutionary advantage, but to survive. In other words, evolution doesn’t improve a species’ chances of survival, but prevents it from going extinct.

This concept has its parallel in the world of crime. As the average person becomes smarter and more careful against old con tricks, criminals must think up newer scams to deceive victims. So when criminals think up new scams, they don’t necessarily make more money. Instead, they are only trying to steal the same amount of money from smarter victims.

Let’s look at a few specific examples to see how scammers have adjusted their tactics to trick more savvy taxpayers.

The Old Scam #1

One of the older tax scams involves a criminal filing a fraudulent tax return by pretending to be someone else and keeping the tax refund for himself or herself. The criminal begins by stealing someone’s identity and using that information to file a tax return that results in a tax refund.

The criminal then waits by the victim’s mailbox to intercept the tax refund check. Pretty slick, but it is far from a perfect scheme. Waiting for the check adds extra work and increases the criminal’s chances of getting caught. Additionally, more and more taxpayers are using direct deposit to collect their tax refund check. Much of this shift is for convenience, but security is another added bonus.

Updated Scam #1

Instead of intercepting the paper check, criminal are now having the IRS deposit the fraudulent tax refund directly into the victim’s own bank account. Then, the criminal calls the victim and demands they return the fraudulently acquired tax refund by threatening criminal prosecution or “blacklisting” the victim’s social security number. Finally, the criminal instructs the victim on how to “return” the money, except the money doesn’t go to the IRS, but the criminal. The clever part of this updated scam is that the victim knows the money doesn’t belong to them and that there’s no dispute that they’re supposed to return it.

Old Scam #2

A con person calls up the victim, claims to be from the IRS and orders the victim to pay a fake tax debt. With a little cajoling and smooth talking, the con person is able to convince the victim that the tax debt is real and that they should pay it off immediately, such as by giving credit card or bank information right over the telephone.


Updated Scam #2 

With the ubiquity of caller ID, telephone tax scammers are now able to take advantage of caller ID spoofing.  When the scammer calls the victim, they will spoof a legitimate IRS telephone number to show up on the victim’s caller ID. Whenever a victim starts to become skeptical, the caller tells them to check the caller ID and compare it to the phone number on the IRS’ website. After seeing that they match, the victim believes the scammer is from the IRS and then does whatever the scammer tells them to do.

What Taxpayers Can Do

It’s hard to provide a one-size-fits-all defense to tax scams given how they evolve. With respect to the above two updated scams, taxpayers need to understand that the IRS will never ask for tax payments over the telephone. Any taxpayer that thinks they have been the victim of a tax scam (or an attempted scam), should report it to the Federal Trade Commission or the Tax Inspector General for Tax Administration.



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