Scam Awareness

Mike Burt, MBA, CPA (Jan, 2016)

With a roll of my eyes I reluctantly answered my somewhat staticky home telephone.  Seeing the caller ID registering this incoming call as a private caller had immediately put me on edge.  With my telephone numbers on the National Do Not Call Registry, it had recently become more and more trying to answer my home telephone with unwanted solicitors who seemed to circumvent the system.

“Hello is this Mr. Burt?” inquired the private caller with a slightly thick foreign accent I could not place and a concerned sounding tone. 

“Who is this?” I interrogated knowing this telephone call was from no one I knew.

“Sir, we have noticed some recent, suspicious activity on your credit card with us.  Can you please verify your credit card number with us so we can help you clear this up,” implored the caller.

My first thought was oh my, this cannot be happening to me.  Being a Certified Public Accountant, I have seen too many good, honest, hard-working clients succumb to identity and credit card theft the past few years.  With a twisting pain inside, I instantly felt the pain I had experienced time and again for all those innocent victims who this happened to, knowing none deserved it.  I felt like I was shipwrecked alone on an island; this time it was me…then something inside me clicked.

Feeling like I was throwing a dart at a cork board praying for it to stick I inquired, “For which credit card?”

For once the dart stuck as the caller genuinely replied, “For your Master Card.”

“Sir, I do not have a Master Card,” I said with a rising irritated tone, trying to steady my voice.

“All the more reason we need to verify the credit card numbers you do have so we can clear this up.  Our records clearly show you have a Master Card with us,” deadpanned the rehearsed pleasant sounding foreign accent.

“Please give me your name, the office you work out of, and phone number where you can be reached.  I need your supervisors name too,” I replied not knowing why I had just not hung up thinking this was a fraudulent phone call, but still hesitant for some unknown reason.  I would do my own Google search afterwards on whatever information I was given to authenticate it, without giving up any information myself.  It is very easy to go to a large company’s main webpage and research their locations.  Very often employees can be found as well with a little digging.

Click…dead static.  How many unsuspecting victims had succumbed to this sincere sounding caller?  I still feel angered thinking about this phone call two years ago in my kitchen, feeling like it was yesterday.

The sad truth is scams are on the rise, and with tax season just starting only more can be expected.  It has happened to someone you know.  It seems no one is immune.  Their goal is to get your personal and financial information for their gain.  What is going on out there we need to be aware of, and what is being done to help stop this illicit behavior?

One of the most common scams according to the IRS consists of threatening and aggressive telephone calls to taxpayers.  Usually scam artists call pretending to be an IRS agent, and most taxpayers have a slight innate fear of dealing with an IRS agent.  People often start dropping their guard once being threatened with such things as being arrested, threats of an audit, the promise of professional licenses being revoked, revocation of a driver’s license, the inability to pay perceived exorbitant penalties (sometimes with taxpayers willing to settle immediately for cents on the dollar ), and deportation to name a few.

Another recent scam that has been catching taxpayers off guard has been scammers using threatening automated telephone calls (referred to as robocalls).  If a person does not answer the robocall, voice messages are often left requesting call backs.  Phony IRS badge numbers and names are given.  The caller ID information often appears to register as that of the IRS.  Occasionally an e-mail will be sent out to try and support their scam.  A con artist may call back pretending to be an IRS agent, or the police.

There has been a rise in taxpayers receiving what look to be authentic, but fake e-mails from federal and state agencies.  Very often these e-mails also lead to authentic looking websites designed to lure taxpayers into a false sense of security believing they are dealing with actual authorities.  Personal information is often given away accidentally with a few key strokes.  With some agencies allowing taxpayers to set-up accounts for estimated payments and account correspondence, some taxpayers anticipate the arrival of e-mails from these agencies.  Also, it seems like times are rapidly changing regarding younger generations.  Oftentimes the use of technology, such as e-mail, is so natural it is expected first over the receipt of a piece of snail mail.

Right around the time tax season starts to heat up the number of identity thefts ramp up.  Normally a taxpayer is unaware that their social security number has been stolen.  Many taxpayers learn from their tax accountants a fraudulent return has already been filed using their social security number for the current year when the return is rejected trying to be electronically filed.  Sometimes IRS correspondence is received regarding adjustments, or collection actions, for years a return was not filed for.  Sometimes taxpayers become aware when benefits are cancelled, or reduced, finding that income changes have been reported to agencies.  Also, the IRS send notices to taxpayers when IRS wage records do not agree to tax returns filed.

Scams can also involve the use of fake charitable organizations.  Very often a charismatic spokesperson is able to entice generous individuals to donate funds to their organization.  Before giving money away, individuals are able to check the charitable organizations’ statuses online to help guard against donating to unscrupulous entities.

An interesting scandal recently made the local papers.  Very few people have heard of charitable gift annuities.  When done properly it allows not only a charitable donation deduction for an individual, but also allows for a fixed income payment stream to the individual for life.  What this scam amounted to was a Ponzi scam.  An individual would invest money in a charitable gift annuity.  Then, the next person to invest would have a portion of their money used to pay off the prior person’s income stream, with this situation repeating itself with each new investor.  Thankfully, they were apprehended.

How often have you heard of, or seen advertisements, promising inflated tax refund claims?  Many scammers advertise during tax season luring in taxpayers, or even through visiting church groups.  Some things to be skeptical about are promises of large refunds before tax information is looked at by a tax preparer, a preparer who charges his fees based upon a percentage of a taxpayer’s refund, or if a blank tax return is asked to be signed.

According to IRS records 60% of taxpayers enlist a tax professional to prepare their tax return.  The majority of tax return professionals are honest, extremely hard working people.  However, every year remote stories surface of a preparer who takes advantage of their client’s sensitive information, with cases of identity theft and refund fraud.  There are also tax preparers in the past who have falsified tax documents such as Form 1099’s.  If a taxpayer ever hears their tax preparer mentioning the idea of falsifying tax records, they need to take that as a cue and leave immediately.  There was a local case a few years ago where a tax return preparer was filing amended returns for clients unbeknownst to them.  Address changes were made on the amended returns, with refunds mailed to the new address, where he checked regularly to pick them up.

Over the years a common recurring scam has been abusive tax shelters.  Very complex tax structures are drawn up for the shear purpose of tax avoidance.  The IRS is wholeheartedly committed to the prosecution of individuals creating and selling these.  Keep the old adage in the back of your mind that if something sounds too good to be true, it usually is.  A few years back taxpayers got hit hard with IRS levies after being persuaded to invest in the abusive BDO Seidman tax shelters.  Those promoting the tax shelters to others soon found themselves in court.

Everyone has heard stories of taxpayers attempting to hide income and money offshore.  Recently there has been an influx of successful prosecutions against offshore tax avoiders.  In order to aid taxpayers in clearing up certain offshore tax situations, the IRS has offered an Offshore Voluntary Disclosure Program (OVDP).

Another scam has been to falsify taxable income in order to claim tax credits.  One of the most popular tax credits abused is the Earned Income Credit.  The IRS has cracked down considerably the past few years on this tax credit, heavily scrutinizing both tax preparers and taxpayers.  Maintaining proper documentation in order to substantiate the taking of this credit is key.

Another tax credit the IRS lists near the top of its abuse hierarchy is excessive claims for Fuel Tax Credits.  This credit is not one that is available to all taxpayers.  Instead, this credit is heavily used by farmers and other business entities with off-highway business use.  The IRS regularly discovers tax preparers inflating client refunds through the use of this credit, or taxpayers reporting the incorrect number of gallons of fuel purchased.

Taxpayers should try and legally minimize the amount of taxes owed each year.  Filing a tax return with a frivolous tax argument can land a taxpayer a penalty of $5,000.  Yet, every year taxpayers file returns with outlandish claims attempting to purposely avoid taxes.  Time and again these taxpayers lose court battles because no one has the right to disobey the law and avoid paying their tax liability.  Both taxpayers and return preparers can be at fault.  Preparers should not be coerced by clients into taking a frivolous tax position, often with the fear of losing a client if they do not take the position.  While there are grey areas within the tax code and an aggressive approach can sometimes be documented as being defendable under IRS scrutiny, preparers should never push a client into taking a position that is known to be incorrect.  I once heard a tax partner tell a client that he wants to be able to sleep well at night.  If he can sleep well at night, then the client will be able to sleep well at night too.  This is a good rule of thumb for both preparers and taxpayers.

The IRS had a major embarrassing wake-up call this past year after a massive security breach affecting over 300,000 people.  In an attempt to help protect taxpayers and thwart identity theft, for the first time the IRS has joined together with accounting practices, software companies, state tax authorities, payroll companies, as well as financial product processors by forming specialized working groups.   The goal is that the synergy of these combined forces will allow for privacy and information protection that is greater than what could be achieved on their own.  They have been working to better authenticate taxpayers as well as better detect correct information upon return submissions, sharing of analytical data regarding fraud leads, to better share information between the private and public sector, to work on betterments regarding information technology security, and empower individuals through fraud awareness education.

Here is a list of things people need to know:

  • The IRS does not initiate contact with taxpayers by telephone, e-mail, social media or text requesting financial or personal information.  A letter is first mailed to the client.
  • The IRS does not call and demand immediate payment from taxpayers.  If the IRS believes that money is owed them, a bill will be mailed out first. 
  • The IRS will not demand payment of taxes by a specific method, such as a prepaid debit card, credit card, bank wire transfer, or money orders.
  • An employee badge number and a call back number should always be asked for.  Many telephone numbers can be verified online.
  • IRS employees can be reached at 1-800-829-1040 to help.
  • If you receive a phishing e-mail never reply to the message, or give out financial or personal information.  Any attachments or links opened through the e-mail may have computer code designed to infect your computer.  The e-mail should be forwarded to then deleted.

Here is a list of things an individual needs to do to be proactive in protecting themselves:

  • You should not carry a Social Security card, documents with your social security number on it, or anything with an Individual Taxpayer Identification Number (ITIN) on it.
  • Only give out your Social Security Number or ITIN if required by a business, not just because they ask for it.
  • Every 12 months it is a good idea to look at your credit report.
  • Make sure personal and financial information is stored securely.
  • It is a good idea to change internet passwords frequently.  Also, every computer should have up to date virus/anti-spam software, and use firewalls.
  • Be wary against giving financial or personal information over the phone, internet, or through the mail.  Reserve this for times when you initiated the contact, or when you know who you are dealing with.

If there is reason to believe you have been a victim of identity theft you should:

  • Immediately call the number on a notice received from the IRS if you believe your identity has been stolen.
  • The IRS Identity Protection Specialized Unit should be contacted at 1-800-908-4490 if you believe your identity has been stolen and a notice from the IRS has not been received.  The IRS will help in matching your Social Security Number or ITIN, as well as secure your tax account.
  • If you get a call from someone claiming they are the IRS and you know you do not owe any taxes go to the Treasury Inspector General for Tax Administration (TIGTA) website and fill out the ‘IRS Impersonation scam’ form, or call the TIGTA at 1-800-366-4484.
  • IRS Identity Theft Affidavit, Form 14039, should be completed and sent to the IRS.
  •  Immediately close any financial and personal accounts tampered with or opened fraudulently in your name.
  • The local police should be contacted and a report filed with them.
  • The three major credit bureaus’ fraud departments should be contacted (Equifax, TransUnion, and Experian).
  • Identity theft should be reported to the Federal Trade Commission at or call the FTC Identity Theft Hotline at 1-877-438-4338.

Sometimes scammers find a way even when all precautions are seemingly in place.  One company was buying a piece of equipment out of state.  There was urgency in buying the equipment before year-end.  The controller was waiting that morning for the company’s president, who was out of state at the equipment retailer, to send the invoice to be paid.  An invoice did come through an e-mail to the controller for a piece of equipment, close to the price range of what was anticipated, and was paid.  The e-mail was not sent from the president.  The money was gone.  The scammers knew the company’s line of business and just happened to time their correspondence coincidentally when the company was purchasing equipment. 

It is important to be aware of the scams currently out there.  Taxpayers must be aware that even if someone else prepares their tax returns, at the end of the day, they are responsible for their own tax returns and information.  Never give out personal information or money unless you are sure who you are speaking with.  A typical case can take up to half a year to resolve or longer, and your refunds may be delayed during this process which can hurt if you need that money. 

Please feel free to contact your Dermody, Burke & Brown tax advisor to further discuss any questions you may have.


The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.

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