Small Business Tax Scams to Watch Out for in 2020

February 19, 2020 by Gordon Advisors

Tax refund fraud, W-2 email phishing and fraud targeted at business is growing

$2.7 billion – That’s the amount of money the IRS blocked in fraudulent tax refunds in 2019, indicating a huge problem affecting small businesses today – tax-related scams involving identity theft and fraud. Research suggests that scams targeting small businesses are on the rise, often resulting in higher losses than individually targeted scams. According to a 2018 Better Business Bureau survey, 67% of participants believe they are more at risk of business scams than they were three years ago.

Gordon Advisors tax experts compiled the following common scams to look out for this tax season, including tax refund fraud, corporate email phishing and tax preparer fraud, also known as “ghosting.” Scammers often target both business and individuals, so be prepared to spot fraudulent activity to minimize your vulnerability to tax-related identity theft. Gordon Advisors is available to assist you in fraud prevention, as well as help answer questions and mitigate damage in the case of a fraud or identity theft incident. Contact us today to discuss tax-related identity theft and fraud prevention.

Tax Refund Fraud

An increasing number of businesses have fallen victim to tax refund fraud in the past few years. How does this tax scam work? It starts with scammers stealing Social Security numbers and then filing fraudulent tax returns on behalf of those identities. Usually, the criminals will file electronically, claiming a low income with high deductions to maximize their (false) paycheck. When the fraud victims try to file their “actual” return, it’s rejected by the IRS because it’s already been filed!

The tax refund fraud scam can be straightened out, but typically takes about 10-14 months for those who are affected. Luckily, the IRS is working to prevent this type of common tax scam. The IRS provides an opt-in program for identity theft prevention, providing individuals with an Identity Protection PIN – a six-digit number to be combined with their Social Security number. This IP PIN is used on all tax returns and helps to verify the identity of a taxpayer. Once opted in, it’s not possible to opt out, and you will receive a new PIN by email every year. Visit IRS.gov/GetanIPPIN to opt in to the program.

For 2020, the IP PIN is only available to residents of the following states:

Arizona
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Illinois
Maryland
Michigan
Nevada
New Jersey
New Mexico
New York
North Carolina
Pennsylvania
Rhode Island
Texas
Washington

Tax Preparer Fraud, Also Known as “Ghosting”

As if fraudulent tax returns by scammers wasn’t enough, a new scam called “ghosting” has been increasing, involving paid tax preparers who don’t sign off when preparing your taxes.

Any tax preparer who fails to sign and include their valid Preparer Tax Identification Number (PTIN) is violating the law. It’s also a huge red flag. If they fail to sign immediately on your return paperwork, they may be looking to cash in for themselves by promising a big tax refund or charging fees based on the size of the refund.

Not signing off and/or providing PTIN aren’t the only signs you’re being cheated. Look out for these other “ghostly” clues:

Falsifying income information on your tax return to receive tax credits
Creating bogus deductions to boost your refund amount
Transferring refunds to their own bank accounts via direct deposit
Being asked for cash payment and not providing a receipt

Taxpayers should be leery of any preparers promising extravagant or inflated tax refunds. Tax pros who promise a big refund before looking at taxpayer records, ask clients to sign a blank return, or charge fees based on a percentage of the refund are all signs of suspicious activity. Scammers attract victims through flyers, phony storefronts and word of mouth, so do your best to avoid these “marketing” methods when seeking tax preparation assistance, unless you can verify that the professionals are reputable. If everything seems right, but you’re still unsure of a business’ legitimacy, try searching for the business or reviewing reported scams in the online Better Business Bureau databases.

W-2 Email Phishing

By now, many of us are familiar with another common tax scam targeting small businesses and employees, called “email phishing.” Scammers are increasingly getting better at posing as legitimate businesses via email, and even in 2020 are successfully tricking over 16,500 employees into supplying personal information every year, according to a survey of over 300 companies in the U.S. and U.K.

Among the worst of the email phishing identity theft scams is the “CEO impostor” trick, where someone pretends to be a top executive and asks the company’s payroll team or human resources for sensitive W-2 information. The criminals then use that data to file fraudulent tax returns or sell the data online to other criminals to do the same.

Employees should be alert to potential fake emails or websites trying to steal their personal information. The IRS will never contact taxpayers via email regarding a bill or tax refund. Never click on emails claiming to be from the IRS and be wary of emails and websites that may be scams designed to steal personal information. When in doubt, don’t click!

We’re Here to Help – We Offer Forensic and Fraud Prevention Services

We hope that this information will help you become more aware of the growing number of tax scams and help you be prepared to spot them, but it’s also never too late to work with an expert to add a layer of financial protection.

Gordon Advisors’ team of fraud and forensic experts have extensive experience and deep understanding of legal proceedings and the fraud investigation process. To see a complete list of our offerings, visit our Fraud and Forensic Services page, or if you’ve become a fraud victim or simply want to learn more, give us a call today.