EFIN tax scam, selecting reputable tax preparers, weather-related scams

Like many conscientious taxpayers, Susan filed her tax return early with a tax professional who told her she’d receive a refund. After waiting for months, she contacted the U.S. IRS, which said that a refund check had been issued in late April. She tried to contact her tax pro, but he was nowhere to be found. The IRS told her that she was a victim of tax-refund fraud.

This case is fictional, but it’s representative of a common type of tax scam aimed toward taxpayers and tax professionals. Indeed, the public has had to be particularly vigilant this year when everything from tax to utility fraud have hit the headlines. (See sidebar: Fraudsters commit weather-related utility scams)

But tax refund fraud has long been a lucrative scam for fraudsters and continues to be so. (See: Identity theft tax-refund fraud: A growing epidemic, part 1 of 2, by Robert Holtfreter, Tiffany McLeod and Adrian Harrington, Fraud Magazine, March/April 2014.)

Tax professionals: be aware of recent scams

One new email phishing scam, targeted at reputable tax professionals, impersonates the IRS with the intent to discover personally identifiable information (PII) and Electronic Filing Identification Numbers (EFIN) of their clients. Fraudsters then impersonate tax professionals and use this information to file fraudulent tax returns for refunds. (See IRS, Summit partners issue urgent EFIN scam alert to tax professionals, Internal Revenue Service, February 10, 2021.)

The fraudsters’ emails to legitimate tax preparers normally say they’re from “IRS Tax E-Filing” with the subject line, “Verifying your EFIN before e-filing.”

Here’s the body of a typical fraudulent email message:

In order to help protect both you and your clients from unauthorized/fraudulent activities, the IRS requires that you verify all authorized e-file originators prior to transmitting returns through our system. That means we need your EFIN (e-file identification number) verification and driver's license before you e-file.

Please have a current PDF copy or image of your EFIN acceptance letter (5880C Letter dated within the last 12 months) or a copy of your IRS EFIN Application Summary, found at your e-Services account at IRS.gov, and Front and Back of Driver's License emailed in order to complete the verification process.

If your EFIN is not verified by our system, your ability to e-file will be disabled until you provide documentation showing your credentials are in good standing to e-file with the IRS.

© 2021 EFILE. All rights reserved. Trademarks 2800 E. Commerce Center Place, Tucson, AZ 85706

The IRS warns tax professionals not to follow these procedures but report the scam to the agency and to the Federal Trade Commission (FTC, ReportFraud.ftc.gov).

In other scams, fraudsters also try to persuade tax professionals to click on links or attachments that steal PII or download malicious malware onto computers.

The IRS explains how this works: “Some thieves also pose as potential clients [of tax preparers], an especially effective scam currently because there are so many remote transactions during the pandemic. The thief may interact repeatedly with a tax professional and then send an email with an attachment that claims to be their tax information. The attachment may contain malware that allows the thief to track keystrokes and eventually steal all passwords or take over control of the computer systems. Some phishing scams are ransomware schemes in which the thief gains control of the tax professionals’ computer systems and holds the data hostage until a ransom is paid. The U.S. Federal Bureau of Investigation (FBI) has warned against paying a ransom because thieves often leave the data encrypted.”

Do you trust your tax professional? Think again

Individuals and organizations normally seek reputable tax professionals for help in preparing their tax returns to ensure they’re following the guidelines. Most tax professionals are legit. But once they load client tax information onto their computers, it can be available to malicious hackers.

Even worse, unscrupulous tax “professionals” use taxpayers’ PII to defraud the government out of revenue by filing for fraudulent tax refunds. When victims contact the IRS to inquire about their refunds, they’re told that they’ve already been issued. Now they must go through the lengthy process of proving who they are to receive their refunds.

Over the past decade the U.S. Department of Justice (DOJ) has issued hundreds of injunctions against fraudsters pretending to be tax professionals and ordered them to shut down. Many of them are fined and sentenced to prison, especially those who file fraudulent tax refunds. (See the alphabetic list of these so-called tax professionals on the DOJ website.)

The IRS recommends these tips to select reputable tax preparers:

Check the preparer's qualifications. The IRS “Directory of Federal Tax Return Preparers with Credentials and Select Qualifications” enables searches for preparers with specific qualifications.

Check the preparer's history. Check with the local Better Business Bureau for preparers’ possible disciplinary actions and license statuses.

See these organizations for specific types of preparers:

• Enrolled Agents: Go to the IRS enrolled agent status page.
• Certified Public Accountants: Check with your state’s board of accountancy.
• Attorneys: Check with your state bar association.

Ask about service fees. Avoid preparers who base fees on a percentage of refunds or boast bigger refunds than their competition.

Ask to e-file. The quickest way to receive refunds is to electronically file and use direct deposit.

Make sure preparers are available. Preparers who aren’t available after the May 15 deadline probably fit into the fly-by-night category.

Provide records and receipts. Reputable preparers will ask to see your records and receipts, and ask questions to calculate total income, tax deductions and credits.

Never sign a blank return. Avoid preparers who ask you to sign blank tax forms.

Review before signing. Of course, review your returns before signing them. Ask questions if something isn’t clear.

Review details about any refund. Ensure your refund goes directly to you — not to a preparer's bank account. Review the routing and bank account numbers on the completed return.

Ensure the preparer signs and includes their PTIN. All paid tax preparers must sign returns and include their Preparer Tax Identification Number.

Report abusive tax preparers to the IRS. Report abusive tax preparers and suspected tax fraud to the IRS with Form 14157. (See preparer complaint form.)

Here to help

As part of my outreach program, please contact me if you have any questions on identity theft or cyber-related issues that you need help with or if you’d like me to research a scam and possibly include details in future columns or as feature articles.

I don’t have all the answers, but I’ll do my best to help. I might not get back to you immediately, but I’ll reply. Stay tuned!

Robert E. Holtfreter, Ph.D., CFE, is a distinguished professor of accounting and research at a university in the U.S. Northwest. He’s a member of the Accounting Council for the Gerson Lehrma Group, a research consulting organization, and is a member of the White-Collar Crime Research Consortium Advisory Council. He’s also on the ACFE’s Advisory Council and the Editorial Advisory Committee. Holtfreter was the recipient of the Hubbard Award for the best Fraud Magazine feature article in 2016. Contact him at doctorh007@gmail.com.

Fraudsters commit weather-related utility scams

The U.S. Federal Trade Commission (FTC) is warning about scams related to winter deep freezes when consumers experience power outages, burst pipes and no water. (See Utility scams are snow joke, by Emily Wu, Federal Trade Commission, Feb. 22.) Then fraudsters continue their scams when volatile spring and summer storms descend.

As I’ve written many times in this column, fraudsters like to take advantage of new catastrophes, especially those related to weather. Of course, vulnerable victims of natural disasters are susceptible to scams. Fraudsters might call, text or email to offer help or threaten their victims.

According to the FTC, fraudsters might pose as utility companies and claim that customers are entitled to reimbursements but only if they provide their bank account numbers. Fraudsters might say errors in their systems require victims to provide PII to restore access. Or they might threaten customers to not restore utilities unless they immediately send money.

The FTC offers the following advice:

• Hang up on callers touting these scams. Never call a number left in a voicemail, text or email. If you're worried, call your utility company directly with the phone number on your bill or on the company’s website.
• Never give banking information over the phone if a caller claims you have to pay a past due bill or your services will be shut off.
• Utility companies don’t demand payment information by email, text or phone. And they won’t force you to pay by phone as your only option.
• It’s a scam if the caller tells you to pay by gift card, cash reload card, money transfer or cryptocurrency. Every time.

To protect your community, contact your local law enforcement authorities and media outlets and the FTC at ReportFraud.ftc.gov to report scams.