New Tax Season, New Tax Frauds

Tax refund fraud has been a favorite of scammers for years. Last year, the IRS paid out billions to fraudsters who filed fake tax returns using stolen W-2 data. And while the IRS has improved on stopping fraudulent refunds, new scams keep developing.

The typical W-2 fraud occurs when a crook files a fake tax return either using a stolen W-2 or by collecting W-2 data from other sources on the dark web. The crooks succeed by filing the return first and receive the refund check. In 2016, the IRS stopped 42,148 tax returns claiming $227 million.

But that hasn’t deterred the hackers. There has already been an influx of new scams targeting your tax return.

Security expert and writer Brian Krebs exposed a new threat hitting inboxes this year. The scam combines the successful CEO fraud with W-2 phishing. For those who are not familiar, CEO fraud (also known as Business Email Compromise) has been costing businesses around the world millions of dollars. In the scam, a phisher impersonates the CEO or executive in a company and sends an email to an associate. The email typically asks the recipient to wire a sum of money to an account. The account belongs to the hacker who makes out with millions before the fraud is discovered.

In this version of CEO fraud, the phishers are after something different. Instead of asking the associate to wire money, they ask for them to forward a copy of all employee tax forms. Once they have that information, they rush to file as many fraudulent returns as they can.

After successfully receiving W-2s, the phishers take the scam a step further and request a wire transfer. IRS Commissioner John Koskinen has called it “one of the most dangerous email phishing scams.”

According to the IRS, this year the phishers are targeting school districts, chain restaurants, healthcare companies, nonprofits, temp agencies, and tribal organizations.

Krebs also noted that W-2 information stolen last year is currently being sold online. The forms are selling for about $4-$20 apiece.

What can you do?

The best way for a company to prevent phishers from stealing employee tax data is to have a process in place for wire and data transfer requests. All employees should be instructed to confirm requests over the phone or in person before sending any money or information.

If you are an employee and are worried that your tax information may have been compromised, you should file your return as soon as possible. If your return is rejected due to a duplicate filing, be sure to file IRS Form 14039 immediately.

What is the IRS doing?

In its quest to combat tax fraud, the IRS is trying new safety features this year. The first is a W-2 verification code. Fifty million W-2 forms will come with a 16-character code this year. If you file your taxes online, you’ll be prompted to enter this code at some time.

The IRS is also delaying returns for individuals claiming the Earned Income Tax Credit or the Additional Child Tax Credit. This is being done to allow the IRS more time to match requests with W-2 data.

In addition, some states are requiring your driver license number when filing state returns.

The Identity Protection Personal Identification Number is also continuing this year. This feature was introduced last year and gave certain individuals a special PIN to enter when filing their taxes. The PINs were assigned randomly but if you live in Florida, Georgia, or Washington D.C. you can request to be a part of this program.

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