This year the IRS’ annual list of tax scams reflects a special emphasis on aggressive and evolving schemes associated with COVID-19 tax relief.

The scams on the 2020 IRS Dirty Dozen list can be encountered at any time during the year, but they peak during tax season. With the extended tax deadlines this year due to the pandemic and extension season well under way, tax scams continue to occur at an alarming rate and an increasing number of people fall prey to these scams. Don’t be one of them. If it sounds too good to be true, it probably is.

Some scams are complex, with sophisticated algorithms being used to steal identities. Other scams are as simple as picking up the telephone to trap unaware and unsuspecting taxpayers. Once again and not surprisingly, phishing and phone scams are at the top of the list. And moving up from number eight last year to number two this year are fake charities, particularly popular among scammers due to the increasing number of people in need and the many new charities recently organized due to COVID-19.

How the 2020 List Compares to the 2019 List

Many of same scams that appeared on the 2019 list also appear on the 2020 list, meaning that these scams consistently, continuously and successfully trap unsuspecting victims year after year. Phishing schemes once again lead the list, with new variations appearing annually.

However, this year the IRS’ annual list of tax scams reflects a special emphasis on aggressive and evolving schemes associated with COVID-19 tax relief. In addition to the typical rise in tax scams during tax season, there tends to be an increase in these types of schemes during times of crisis as the IRS has seen scammers attempting to use the pandemic and natural disasters to steal money and personal information from taxpayers.

2020 IRS Dirty Dozen Scam List

1. Phishing 

The IRS kicked off its annual Dirty Dozen list by warning taxpayers, including individuals, businesses and tax professionals, to be alert for a continuing surge of fake emails, text messages, websites and social media attempts to steal personal information.

Much of the fake correspondence used in these phishing schemes has been utilizing keywords such as “coronavirus,” “COVID-19” and “stimulus” in varying ways as an attempt to play on taxpayers’ fear and uncertainty associated with the virus and stimulus payments.

2. Fake Charities

The IRS is also warning of an increase in fake charities in the wake of the COVID-19 pandemic. Fraudulent charity schemes like these generally become more prevalent in times of hardship or tragedy, such as natural disasters, in an attempt to exploit well-intentioned people trying to help those in need.

The IRS urges taxpayers to be wary of unsolicited donation requests from charitable organizations, even those that seem legitimate. Genuine charities should be able to provide their employer identification number (EIN) on request, which can be confirmed with the search tool on IRS.gov.

3. Threatening Impersonator Phone Calls

The IRS is warning taxpayers to be wary of scam attempts via phone calls in which the perpetrator claims to be from the IRS. The scammer then attempts to coax money or personal information from the taxpayer by claiming that a bill or tax remains unpaid. The caller will threaten actions such as arrest, penalties and fines, or license revocation if immediate action is not taken by the taxpayer.

It is crucial to remember that an IRS agent will never demand immediate payment or request financial information over the phone.

4. Social Media Scams

With the ever-rising prevalence of social media, the IRS is also warning taxpayers of scams stemming from any number of platforms. Perpetrators are using the abundance of personal information housed within these social media sites to send emails, texts or social media messaging posing as a close friend or family member.

Another tactic being used by criminals is to send an email or message with a link to something of personal interest to the taxpayer, but instead actually contains malware that grants access to their personal information.

5. EIP or Refund Theft

The IRS directs taxpayers to closely monitor the status of their economic impact payments or expected refunds from filing their tax return. This type of fraud stems from identify theft wherein a criminal may file a fake tax return or submit incorrect information to the IRS so as to direct refunds or other payments to the addresses of the perpetrators.

6. Senior Fraud

The IRS advises senior citizens and those who care for them to be wary of scams targeting the elderly. Seniors have long been one of the most heavily targeted groups for these types of scams. While their growing comfortability with social media and burgeoning technologies is good, it potentially opens up new avenues by which scammers can target them.

7. Scams Targeting Non-English Speakers

The IRS alerts taxpayers that scammers have been known to target those with limited proficiencies in English. Similar to the threatening impersonator phone calls described above, these scams typically come in the form of threatening phone calls from someone claiming to be from the IRS. In these cases, however, the perpetrator will likely threaten jail time or deportation if the demands are not met.

8. Unscrupulous Return Preparers

Selecting the right return preparer is important. They are entrusted with a taxpayer's sensitive personal data. Most tax professionals provide honest, high-quality service, but dishonest preparers pop up every filing season committing fraud, harming innocent taxpayers or talking taxpayers into doing illegal things they regret later. The IRS advises taxpayers to choose tax return preparers carefully.

9. Offer in Compromise Mills

The IRS counsels taxpayers to be wary of offers to eliminate or settle tax debts through an offer in compromise (OIC). What makes this scam difficult is that OICs are in fact a legal means by which the IRS can help taxpayers who meet very specific criteria to lower their tax bill. The scammers promise the taxpayer acceptance into the program and collect fees to churn out applications that are highly likely to be denied. For taxpayers who may qualify and have interest in an in pursuing an OIC, we recommend professional representation from experienced CPAs or tax lawyers, such as those in our National Tax Controversy Group, as OICs are a complex process fraught with traps for the inexperienced taxpayer.

10. Fake Payments with Repayment Demands

The IRS warns taxpayers to avoid schemes requesting they return an issued refund through specific means, such as through the purchasing of gift cards. Criminals may file a fake tax return and have the refund issued to the taxpayer, then call claiming to be from the IRS and indicating that they need to return the refund in a certain manner.

11. Payroll and HR Scams

The IRS advises taxpayers and employers to be wary of email scams, particularly in light of the increase in employees working remotely due to COVID-19. For example, employers may receive fraudulent emails claiming to be employees wanting to change the account to which their direct deposit payments are made.

12. Ransomware

The IRS warns of a growing type of malware that does not rely on the user unwittingly downloading the virus, but instead searches for weak security or other vulnerabilities. Once the criminals have gained access to the taxpayer’s information, they will lock or encrypt the data so that the person cannot access their own information until they pay the perpetrator the “ransom” that they request. The IRS urges taxpayers and tax professionals to utilize multifactor authentication as one of the strongest means by which to protect against such attacks.

 The 2019 vs. 2020 Dirty Dozen Comparison 

 Reminder of Seven Things the IRS Will Never Do:

• The IRS will never call you to demand immediate payment.
• The IRS will never demand a specific method of payment (prepaid debit card, gift card, wire transfer, etc.).
• The IRS will never call about taxes owed without first having mailed you a bill.
• The IRS will never demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
• The IRS will never ask you for credit or debit card numbers over the phone.
• The IRS will never threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
• The IRS will never call you to discuss an unexpected refund.

TAG's Perspective

As we have been cautioning our clients and friends for years now, never respond to an unsolicited email, text or phone call. That is, if you did not initiate the discussion, whether an email or text or phone call, etc.―don't proceed, don’t respond. Just hang up or delete it. This simple approach avoids ugly consequences. These words of caution are more prevalent than ever due to the COVID-19 pandemic, because fear and uncertainty may make taxpayers more susceptible to scams, and more business is being conducted remotely, which leads to a greater risk of fraudulent emails or phishing schemes. Additionally, new tax laws such as the SECURE Act, which we wrote about in this Alert, and the CARES Act, which we wrote about in this Alert, and talks of additional stimulus may make taxpayers more likely to believe fraudulent IRS correspondence.

For Further Information

If you would like more information about this topic or your own unique situation, please contact Sean R. Schoppy, Steven M. Packer or any of the practitioners in the Tax Accounting Group. For information about other pertinent tax topics, please visit our publications page.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.