The Senate Finance Committee heard testimony Thursday about the increasing prevalence of tax scams and identity theft, with senior citizens finding themselves especially vulnerable to callers impersonating Internal Revenue Service employees.
The Treasury Inspector General for Tax Administration receives between 9,000 and 12,000 reports about such scam calls every week, and to date has received about 366,000 reports of such calls, according to Timothy P. Camus, deputy inspector general for investigations at TIGTA.
In his prepared testimony before the Senate Finance Committee, he mentioned a letter provided by a member of the committee about the tragic death of a constituent’s father after receiving several threatening calls from a scammer claiming to be from the IRS and demanding money.
“This scam has cost thousands of taxpayers millions of dollars, but to my knowledge, this may be the most heartbreaking result,” said Camus. “TIGTA continues to work with the IRS to strengthen its efforts to crack down on this type of abuse and try to prevent other vulnerable individuals from being victimized by this kind of fraud.”
Camus noted that as of March 9, 2015, 3,052 individuals have been victimized by the scam by paying a total of $15.5 million, averaging over $5,000 per victim. The highest reported loss by one individual was over $500,000. In addition, 296 of the victims also provided sensitive identity information to scammers.
“The scam has claimed victims in almost every state in the country,” Camus noted. “For example, taxpayers in Utah have lost more than $276,000 to this scam, and taxpayers in Oregon have lost more than $180,000.”
As of Feb. 28, 2015, the top five states in terms of the total dollar losses by victims were California ($3,840,000), New York ($1,352,732), Texas ($795,884), Florida ($760,000) and Virginia ($648,363).
“The criminals do not discriminate,” said Camus. “They are calling people everywhere, of all income levels and backgrounds. In fact, I myself received one of these calls on my home telephone on a Saturday, and you may also have received a call or know of a family member or constituent who has received one as well.”
TIGTA believes the calls are being placed from multiple sources, and the scam is now the subject of an ongoing multi-agency investigation.
“I can tell you it is a matter of high priority for law enforcement,” said Camus. “As I told the individual who called me on my home phone, Your day will come.’ In the meantime, we are investigating some of the individuals who process the money, and most recently we arrested two individuals associated with this type of scam. The two individuals were arrested and prosecuted for their role in converting the prepaid money cards. When interviewed, one of the defendants estimated she had used prepaid debit cards to purchase approximately $5,000 in money orders per day, six days a week, since November 2013, or roughly $900,000 in money order purchases between November 2013 and July 2014. In another case, in March 2014, an individual was indicted for using an impersonation scam. More specifically, he was indicted for extortion, false impersonation and fraud.”
Ellen Klem, director of consumer outreach and education at the Oregon Attorney General’s office, said she advises people to just hang up the phone when someone calls claiming to be from the IRS.
“Every day, I hear stories from our most vulnerable citizens about a wide variety of scams and frauds,” she said. “To an unassuming Oregonian, these scams can be threatening, and quite frankly, scary. While fraudulent behavior, imposter phone calls and unofficial mail solicitations have always been a part of a scammer’s repertoire, today’s scammers use new tactics. Lately, my conversations with Oregonians have focused almost exclusively on the IRS imposter scam. This is a major headache for too many Oregonians.”
She noted that the scammers typically tell victims over the phone that they owe money to the IRS or Oregon Department of Revenue. The caller then demands that the person pay the money immediately through a temporary debit card or a wire transfer. If the victim refuses to pay, they are threatened with arrest, deportation or suspension of a business or driver's license.
“In many cases, the caller becomes aggressive and insulting,” Klem added. “For a vulnerable Oregonian, this phone call can be devastating. In 2014, the IRS imposter scam topped Oregon’s list of consumer complaints. Last year, 1,340 Oregonians filed complaints with the Oregon Attorney General about this scam, nearly double the complaints as the next highest category. Victims of this scam reported losses totaling $77,137.09. Unfortunately, we know this is just the tip of the iceberg. Many scam victims do not even report their losses because they either don’t know whom to report to or are too ashamed that they have been scammed. For countless others, they may not even know they have been scammed.”
Senate Finance Committee chairman Orrin Hatch, R-Utah, pointed to one example of a Utah family who had lost $15,800 in savings to a scammer.
“Taxpayers must be more aware of the risks and better protected from attack,” he said in his opening statement. “And these criminals must be found and brought to justice.”
Sen. Ron Wyden, D-Ore., the ranking Democrat on the committee, pointed out that tax scammers are an old problem, but they are now taking better advantage of evolving technology. “Since the day the IRS opened its doors, scam artists have been hatching up slick new ways of stealing taxpayer dollars from the Treasury,” he said. “What’s new is, they’re now stealing Americans’ identities and personally threatening them on an industrial scale, while directly robbing them of their hard-earned money. The fraudsters dream up new tactics and milk them for all they’re worth before they start getting caught. Then it’s lather, rinse, repeat. Onto the next scam, always one step ahead of the law.”
Rogue Preparers
In addition to increased cooperation between tax authorities, Wyden called for higher standards for paid tax preparers, many of whom don’t have to meet any standards for competence, he pointed out. He contended that some tax preparers simply botch their customer’s tax filings, while others purposely claim an inflated refund without the taxpayer’s knowledge and pocket the difference. At the end of tax season they disappear with no accountability for victims.
Earlier this year, Wyden and Senator Ben Cardin, D-Md., introduced the Taxpayer Protection and Preparer Proficiency Act to set standards and crack down on fraudulent tax preparers.
To combat scammers and identity thieves, John Valentine, chairman of the Utah State Tax Commission, recommended that lawmakers strengthen information sharing between the IRS and the states. They should also provide stricter regulation of the financial industry as it relates to prepaid debit cards (on which many identity thieves get tax refund sent), prohibit the practice of applying tax refunds to the payment of fees for filing services, and require third-party filing services to tighten front-end security by using multi-factor authentication and other measures to secure data from unauthorized disclosure and identity theft.
He described the Utah State Tax Commission’s experiences with suspicious tax filings. “We found third-party filing services often lack the front-end security measures necessary to protect their users in this cyber world,” he said.
“At a minimum, these services should install multi-factor authentication to assure that a person filing a tax return is indeed the person identified on the return,” said Valentine. “Quality firewalls and other data protections are a given, but since we are uncertain at this time of how the prior return information was obtained, it is a careful company, concerned about their product and its customers, that will invest the funds necessary to protect their data from cyber thieves.”
Mike Alley, commissioner of the Indiana Department of Revenue, discussed the steps his state is taking to combat tax fraud, but also the limitations they are confronting. “Tax refund fraud is one of several lucrative platforms for criminals to monetize the value of stolen identity information,” he said. “It is being perpetrated by thousands of culprits, from the small-time individual fraudster to large, sophisticated criminal enterprises. In the past, it has been very easy with negligible risk of apprehension or prosecution. The advent of electronic filing and processing has enhanced the ability of criminals to utilize economies of scale in filing large volumes of fraudulent returns, at a nominal cost, replicating numerous returns with only minor changes in original identity information. The zeal of departments of revenue to speed up the processing of returns and reducing turnaround time for refunds—all in the spirit of good customer service—also has contributed to the problem making it easier for criminals to take advantage of the system. Our systems were designed to process rapidly and efficiently—not to screen for fraud and fabricated identities.”
