Back-to-School Tax Scam

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Its back to school this week for many kids across the country. As great as summer vacation can be, many parents look forward to getting back into a regular routine come mid August. If you don’t have children, then you probably have no idea what kind of costs are associated with this annual tradition. Many parents like to update their kids’ wardrobes before school starts, and this is often the biggest expense. But there are a whole host of other expenses like school supplies, PE clothes, yearbooks**, school pictures, and sports equipment. But it has been four months since anyone had to think about their taxes, so at least that is not a concern. Not until you get a call from the scammer posing as an IRS agent demanding that you pay a bogus school tax. I wish I were making this up. Today the IRS warned taxpayers about this new twist on an old theme. Tax scam artists tend to prey on categories of people who may be more vulnerable, and I guess one of those categories is the taxpaying parent who will do anything to avoid jeopardizing their child’s education.

People, I have said this 1,000 times, but I’ll say it once more: the IRS does not call you out of the blue and demand that you make a payment over the phone. They do not call you out of the blue and threaten to send you to prison. And when I say “out of the blue,” I mean if you haven’t received any notices or letters from the IRS about tax problems (like taxes owed or missing returns), then chances are you don’t have any tax issues that would land you in prison. It really is that simple.

While it seems ridiculous to me that anyone would fall for this scam and think they actually have to pay a “Federal Student Tax,” there is at least one scenario in which I can imagine this scam being successful. Many 17/18-year-old kids go off to college and they’re on their own for the first time in their lives. If you can remember what it’s like to be this age, they tend to be fairly naïve about certain financial matters (like taxes). This financial innocence mixed with the new-found confidence (recklessness for some) of adulthood is a recipe for disaster. I could definitely see the back-to-school scammer finding success with this demographic. Be careful out there college kids!

** I know yearbooks don’t get printed until the end of the school year, but at my kids’ school they suggest reserving your copy before school even starts because they print only a limited number of them and once they’re gone, they’re gone, so of course we have to get one.

IRS Impersonators Have New Tricks

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Scam artists, posing as IRS agents, who contact innocent taxpayers out of the blue and demand payment on tax bills that don’t exist are getting more crafty and casting a bigger net these days. For at least the past few years now, the IRS has regularly published updated warnings each time they perceive a new wrinkle, or if enough time has passed since the prior warning.

This month, the IRS published a scam warning that identifies a couple trends that suggest these tax criminals are taking the time to do some homework rather than calling completely unscripted. For example, one tactic is to alter your caller ID so it appears the call is coming from a legitimate government agency.  Scammers have always posed as official government representatives by giving false names, titles, and badge numbers, but now they are more frequently adding this new layer of “authenticity” to the call.

The ultimate goal of IRS phone scam artists is to get the victim to make a payment over the phone and/or provide sensitive information like your name, address, and social security number. If they are successful in obtaining a payment over the phone, they are now asking victims to mail proof of payment to an actual IRS office nearby. Taxpayers choosing to verify the address can look it up in a Google search and see that it is the correct address to their local service center, which lends a sense of legitimacy to the whole interaction. Of course, anyone with half a brain would know that providing the address to an IRS office that is posted on the internet for anyone to see means absolutely nothing.

In this month’s published warning, the IRS states that these scam artists use angry voices to strike fear into their victims and pressure their victims into making rash decisions. Then the IRS lists a few things that they will “never” do, so it will be easy to distinguish between scammers and true IRS representatives:

  1. Angrily demand payment over the phone
  2. Call prior to sending a bill for overdue taxes
  3. Threaten arrest for non-payment of taxes
  4. Demand payment without the opportunity to appeal the amount owed
  5. Require a specific payment method
  6. Ask for credit or debit card numbers over the phone

#1 on this list is a little strange to me because anger, and the detecting of anger in someone’s voice, is a subjective thing. Isn’t it? I have heard demands for payment invoices that could reasonably be characterized as “angry.”  I have also had IRS representatives tell me that they require an “auto debit” payment arrangement in order to approve an installment agreement, hence somewhat of a violation of #5.  However, in my experience, IRS representatives usually do a pretty good job complying with this list.

Mastermind of IRS Phone Scam Gets 14 Year Prison Sentence

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You would have to be living under a rock if you’re not aware of the pervasive IRS impersonation phone scams going around.  These scammers prey on the least-informed, most vulnerable people in society, convincing them that the IRS is on the brink of throwing them into prison for unpaid taxes when, in many cases, no taxes are owed.  Now at least one of the masterminds behind this, Sahil Patel (36), is going to be put away for 14 years.  Patel was sentenced a couple days ago in a U.S. District Court in New York for conspiring to extort, to impersonate government officials, and to commit wire fraud.

The government considers Patel one of the ringleaders in a scam that duped nearly 4,000 people out of a combined $20 million over the past two years.  However, this criminal group is obviously run by more than just Patel as the phone calls have not stopped since his conviction.

Maybe 14 years seems like a long time to you for a crime that doesn’t involve taking a life, but this is what the district judge had to say about it:

The nature of this crime robbed people of their identities and their money in a way that causes people to fee that they have been almost destroyed.

He definitely wanted to “ensure adequate deterrence.”  Plus I don’t think it helped that Patel came across as an “unfriendly” witness.  He reportedly made some sexist comments about the women he hired to do the dirty work and how they were ignorant and gullible.  I know that 14 years seems like a heavy penalty, and you can’t really expect a higher level of severity, but I wonder if this will really deter the co-conspirators who appear to be keeping the scheme operational.  The rewards are so incredibly high for them and, at this point at least, the risks seem to be just low enough.

We can increase the risk by finding more of these guys, and I think the IRS, in cooperation with law enforcement, is doing the best they can.  We can reduce the reward by informing the public — and this is where I think they can improve.  I started this article by saying that one would have to be living under a rock to not be aware of these phone scams, but I don’t know if that is true.  As a tax attorney, I hear about this kind of thing all the time because I am dialed into tax news and events.  But is the average taxpayer getting the message?  I think IRS public service messages are focused on tax professionals.  Maybe there should be a broader kind of outreach through TV and radio.  I suppose there is a reason why they haven’t gone there; maybe they don’t want to freak everyone out.

IRS Phone Scam Complaints top 90,000

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The IRS has long warned taxpayers to be on the look-out for deceptive phone calls from criminals posing as IRS agents.  These scams were once thought to target the elderly, those within specific socioeconomic groups, or those who recently immigrated to the United States.  However, based on the anecdotal evidence I have gathered over the past several years, I don’t think these criminals go through the trouble of targeting specific groups.  Perhaps they did at one time, but now they appear to be just “shooting from the hip” hoping to deceive even a small fraction of the taxpayers that they contact each day.

I have seen how prevalent these phone scams have been in Sacramento, and now with our new office location, I can see that the scams are no less of an issue in the Central Valley towns of Modesto, Ceres, and Turlock.  I was recently privileged to hear a recording of one of these calls and, I must say, the caller’s voice was very confident and convincing.  Of course, the content of what he was saying was laughable, but the tone of the call was professional and authoritative.  I say that about the content because I know what the IRS will and will not say in a phone message.  First of all, the IRS is reluctant to provide details of anyone’s confidential tax account in a voice mail message unless you have previously given them permission to do so.  Second, the IRS does not, in their first contact with a taxpayer, jump right into statements about criminal liability, subpoenas, and arrest warrants.  And the IRS never asks for payments to be made immediately over the phone.  Furthermore, if you do have a tax problem of some kind, such as owing back taxes or missing tax returns, the first contact from the IRS will be by way of a letter, not a phone call.

My anecdotal evidence seems to confirm what the IRS is reporting about phone scams: 90,000 complaints and growing. The best way to report one of these phone calls is to complete an online scam reporting form which is accessible from TIGTA’s website.