Identity Theft Still on IRS ‘Dirty Dozen’ Tax Scams List

Even though reports of tax-related identity theft have declined in recent years, the Internal Revenue Service warns that this practice is still widespread and remains serious enough to earn a spot on the agency’s annual “Dirty Dozen” list of tax scams.

The Dirty Dozen is compiled each year by the IRS and outlines a variety of common scams taxpayers may encounter any time during the year. Many of these cons peak during filing season as people prepare their tax returns or hire tax professionals.

Tax-related identity theft occurs when someone uses a stolen Social Security number or Individual Taxpayer Identification Number (ITIN) to file a fraudulent tax return claiming a refund.

Criminals are devising more creative ways to steal more in-depth personal information to impersonate taxpayers. Taxpayers and tax professionals must remain vigilant to the various scams and schemes used for data thefts.

Business filers should be aware that cybercriminals also file fraudulent Forms 1120 using stolen business identities and they, too, should be alert.

Security Reminders for Taxpayers:

● Always use security software with firewall and anti-virus protections.

● Encrypt sensitive files such as tax records stored on the computer.

● Use strong passwords.

● Learn to recognize and avoid phishing emails, threatening phone calls and texts from thieves posing as legitimate organizations such as banks, credit card companies and government organizations, including the IRS.

● Do not click on links or download attachments from unknown or suspicious emails.

● Protect personal data. Don’t routinely carry a Social Security card, and make sure tax records are secure. Treat personal information like cash; don’t leave it lying around.

IRS ALERTS TAXPAYERS ABOUT REFUND SCAM

The IRS warns taxpayers of a new twist on an old scam. Criminals are depositing fraudulent tax refunds into individuals’ actual bank accounts, then attempting to reclaim the refund from the taxpayers.

Here are the basic steps criminals follow to carry out this scam. The thief:

● Hacks computers to steal taxpayer data.

● Uses the stolen information to file tax returns as the taxpayers.

● Has refunds deposited into taxpayers’ bank accounts.

● Contacts their victims, telling them the money was mistakenly deposited into their accounts and asking them to return it.

While the IRS is aware of variations of this scam, the agency also knows that this scam may continue to evolve. Here are two current versions of this scam:

● Criminals pose as debt collection agency officials acting on behalf of the IRS. The thief contacts the taxpayer to report an erroneous refund deposit and request that the taxpayer forward the money to the thief’s collection agency.

● The taxpayer who received the erroneous refund gets an automated call with a recorded voice saying the caller is from the IRS. The recording threatens the taxpayer with criminal fraud charges, an arrest warrant and a “blacklisting” of his or her Social Security number. The recorded voice gives the taxpayer a phony case number and telephone number to call to return the refund.

Taxpayers should always remember their first contact from the IRS will be through official written correspondence sent via U.S. mail, not a phone call from out of the blue.

Here are some things taxpayers should remember if someone contacts them about an erroneous refund:

● There are established procedures taxpayers should follow to return erroneous funds to the IRS. Tax Topic Number 161 (https://www.irs.gov/taxtopics/tc161) has full details about how to return the money, including the actual mailing addresses where a taxpayer should send a paper check, if necessary.

● The IRS encourages taxpayers to discuss the issue with their financial institutions because there may be a need to close bank accounts.

● Taxpayers receiving erroneous refunds also should contact their tax preparers immediately.

Do IRS Liens Have Priority Over Mortgages?

If a taxpayer fails to pay overdue taxes, the IRS has the right to place a lien on the taxpayer's real property. An IRS lien is the federal government's legal claim against the taxpayer's property to secure payment of the tax debt. Upon sale or foreclosure of the home, who gets paid first - the mortgage or the IRS?

The answer depends on the "priority" of the lien. If the IRS files a lien on property that already has an existing mortgage, the mortgage has priority over the IRS lien. Upon sale or foreclosure of the home, the proceeds would first be used to pay the mortgage, and if there is enough left over, the IRS would be paid next. If the IRS files a lien on property that has an existing first and second mortgage, the IRS lien would be third in priority and wouldn't be paid until after the two mortgages are fully repaid.

On the other hand, if the IRS files a lien on property that is owned free and clear of any mortgages, the IRS lien will have priority over any subsequent mortgages that the homeowner obtains. In reality this situation is unlikely to occur since most mortgage lenders would not be willing to provide a loan on property that has a pre-existing tax lien.