Tax Technology Scams

Technology has made tax compliance a lot simpler and more efficient. I believe at some point, tax compliance and payment will be a  just-in-time activity we can easily do from our smart phone or watch.

But, computer systems and networks need to be extremely secure due to the highly sensitive data and the thieves who work 24/7 to get the data. Just this week, the IRS alerted tax professionals of thieves and scammers trying to get control of practitioner computers to avail themselves of client tax data.

This is not the first warning from the IRS. A few times during 2016 the IRS warned tax professionals of scams aimed at obtaining their PTIN and client data. As part of the Security Summit, the IRS launched a campaign called – Protect Your Client: Protect Yourself, to bring greater awareness of threats and how to avoid them. One such scam involves thieves taking control of the practitioner’s computer and thus being able to obtain data from it.

The IRS encourages practitioners to review the security settings on their computers. In a 9/2/16 press release (IR-2016-119), the IRS recommends:

“In addition to activating security measures for tax software products, IRS urges all tax preparers to take the following steps:

• Run a security “deep scan” to search for viruses and malware;
•  Strengthen passwords for both computer access and software access; make sure your password is a minimum of eight digits (more is better) with a mix of numbers, letters and special characters and change them often;
• Be alert for phishing scams: do not click on links or open attachments from unknown senders;
• Educate all staff members about the dangers of phishing scams in the form of emails, texts and calls;
• Review any software that your employees use to remotely access your network and/or your IT support vendor uses to remotely troubleshoot technical problems and support your systems. Remote access software is a potential target for bad actors to gain entry and take control of a machine.

In addition, the IRS recently issued instructions to tax professionals on how to monitor their PTIN activity.”

It's challenging enough for tax practitioners to work with the tax law and keep up to date with it. They also need to have a good foundation in technology and keep up to date to understand how to keep e-data secure and have appropriate technology set up for their tax practice.

What do you think?

Tax scams and how is our complex and odd tax system partly to blame

On March 2, 2012, the IRS issued a news release warning people about various tax scams including one that tells people they are entitled to an education credit for the taxes paid on groceries (IR-2012-29). Some scammers are apparently using the refundable portion of the American Opportunity Tax Credit to get refunds for people who are not incurring any college costs. Some are promising stimulus payments. Scammers often get the fee from the client and then skip town.

Should taxpayers know better?  Of course. If something sounds too good to be true, it probably is.  Is it difficult to tell fact from fiction with respect to provisions of our federal tax system?  Yes, I think it often is. In 2009 when we had Economic Recovery Payments and recovery rebate credits, didn't that sound too good to be true?  The government was going to give you money?  We are still in an economic downturn. Should someone who received an economic stimulus payment a few years ago be surprised if someone tells them they can get another one? I don't think so?

If someone has claimed a $1,000 child credit or $2.500 America Opportunity Tax Credit (even if their income is too high to qualify for needs based scholarships), should they be surprised that the government wants to give them even more money?

But what about getting a college tax credit for paying taxes on groceries?  Only 7 states even impose a tax on groceries (FTA). Even in those states, that one seems a bit of a stretch. The IRS news release suggests people read a website about education tax benefits (it is 3,600 words long!) and at the end refers to a few other links including to Publication 970 which is almost 100 pages long.  Is the average taxpayer supposed to understand all of this?  Complexity like this creates a breeding ground for scammers.

The IRS offers these tips to all taxpayers:

"To avoid becoming ensnared in this scheme, the IRS says taxpayers should beware of any of the following:

• Fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.
• Unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches.
• Internet solicitations that direct individuals to toll-free numbers and then solicit social security numbers.
• Homemade flyers and brochures implying credits or refunds are available without proof of eligibility.
• Offers of free money with no documentation required.
• Promises of refunds for “Low Income – No Documents Tax Returns.”
• Claims for the expired Economic Recovery Credit Program or for economic stimulus payments. 
• Unsolicited offers to prepare a return and split the refund. 
• Unfamiliar return preparation firms soliciting business from cities outside of the normal business or commuting area."

Will the new paid return preparer oversight program help?  I don't think so. If someone wants to break the law, they will continue to do so and either not sign the returns they prepare or use a bogus name and PTIN.

Scammers will only become less of an issue when;

• The tax law is simpler so more people can understand it without having to read a 100 page publication that is only about higher education expenses.
• The tax law is not used for economic recovery payments. When people get "free money" from IRS or Treasury, why not just tell yourself anything is possible in our tax law?
• Greater taxpayer education that needs to start in high school. Students should learn about local, state and federal taxes - why these jurisdictions have taxes, types of taxes, basic tax concepts, how to prepare a state and federal income tax return by hand and with software, how to get information, how to get qualified help, etc.
• The IRS needs to have a website where people can go and phone numbers people can call to verify someone's name and PTIN (sounds like a photo would also be a good idea - perhaps for a future PTIN renewal requirement).
• Individuals need to be subject to a fine if they file a return for which they paid someone to prepare but that person does not sign it and put their PTIN on it.

What do you think?