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Lane Keeter, CPA

Partner: Tax Consulting, Estate Planning, and Heber Springs Managing Partner

A New Twist on an Old Scam

It's tax season, and tax scams have become so common during this time of year that they almost seem like a rite of passage. This year is no different.

The IRS recently has made us aware of a new scam that seems to have them more concerned than usual; so much so that they have put out multiple warnings about it.

In this latest twist, the scammers use phishing and other manipulations to gain access to taxpayer data from tax professionals (sigh). Then, using what they steal, they file false tax returns claiming refunds and, get this, have the fraudulent refunds actually deposited into the victim's real bank account. Finally, the crooks pose as the IRS, a member of a law enforcement agency, or even a collection agency to con the victims into turning the funds over to them.

In one version, a live caller will contact the victim, claim to be an IRS or collection agent and demand that the refund be returned to the purported debt collection firm. In another, a recorded call occurs that is designed to scare the victims into submission by accusing them of fraud, and then threatening arrest and "blacklisting" of their Social Security number. The recording instructs the listener to call a telephone number for instructions on how to return the refund and even may assign a "case number" to make it appear more legitimate.

Of course, all of this seems to be very authentic because, after all, the thief really does have the taxpayer's real information and there really is a bogus refund in the bank!

This scheme makes it very difficult to stop or even identify the false returns because of the fact that they are using very real taxpayer information. They know things like actual income, deductions, exemptions and the like, making these returns seem very legitimate.

So what do you do if you discover this has happened to you? Naturally, you need to take steps to return the money to the IRS. Here are the ways the IRS says to return an erroneous refund:

If the erroneous refund was a direct deposit:

  1. Contact the Automated Clearing House (ACH) department of the bank/financial institution where the direct deposit was received and have them return the refund to the IRS.
  2. Call the IRS toll-free at 800-829-1040 (individual) or 800-829-4933 (business) to explain why the direct deposit is being returned.Author's note: if the refund was by direct deposit, you probably should consider closing the affected account since the thieves now have your account information.

If the erroneous refund was a paper check and has not been cashed:

  1. Write "Void" in the endorsement section on the back of the check.
  2. Submit the check immediately to the same IRS regional service center that issued it. The location will show (possibly abbreviated) on the bottom text line in front of the words TAX REFUND on the refund check.
  3. Do not staple, bend, or paper clip the check.
  4. Include a note stating, "Return of erroneous refund check because (and give a brief explanation of the reason for returning the refund check)."

If the erroneous refund was a paper check and you have already cashed it:

  1. Submit a personal check, money order, etc., immediately to the appropriate IRS location as mentioned earlier.
  2. If you no longer have access to a copy of the check, call the IRS toll-free at 800-829-1040 (individual) or 800-829-4933 (business) and explain to the IRS assistor that you need information to repay a cashed refund check.
  3. Write on the check or money order: "Payment of Erroneous Refund", the tax period for which the refund was issued, and your taxpayer identification number (social security number, employer identification number, or individual taxpayer identification number).
  4. Include a brief explanation of the reason for returning the refund.

As if all this isn't bad enough, by law you actually can be charged interest on an erroneous refund. Talking about being kicked while you are down!

The key to all of this is speed; the faster you act once you realize there is a problem, the more the damage can be minimized. And I've said it before, but it bears saying again; please realize that the IRS is NOT going to call you. So if you receive such a call, there is your first clue that something is awry and you need to investigate.


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