What Taxpayers Ought to Know About IRS Scams

A recent upsurge of IRS phone scams in Fort Worth, Texas has brought national attention to the issue. So far this year, over $73,000 has been stolen from Fort Worth residents by callers claiming to be IRS employees. IRS phone scams are a nationwide problem. Last year, over 300,000 incidences were reported from all over the country.

These phone scams usually involve imposter IRS employees telling victims that they owe back taxes, or unpaid taxes, from a previous year. Sometimes, the scammers will threaten to call the police if the victim does not pay. Scammers will also claim that the victim is being audited in order to acquire financial information.

Having a basic understanding of IRS procedures for back-tax collections and audits will help alert you to scams.

IRS Collection Procedures

Individuals owe back taxes if they did not pay their taxes in full or in part. There are several steps the IRS takes to collect back taxes.

The first step in the collection process is to provide the taxpayer with notice, by sending a notice letter. This letter will contain a bill for the amount owed, including interest and penalties, and a demand for the taxpayer to pay in full. If the taxpayer does not respond to the IRS, it will send another letter with an assessed balance that includes interest and penalties. If you did not receive a notice prior to the phone call in question, it is likely a scam.

If the taxpayer cannot pay-in-full there are usually several options available, such as installment agreements or offers-in-compromise. An installment agreement allows the taxpayer to pay incrementally. An offer-in-compromise is where the taxpayer negotiates with the IRS to pay a reduced amount in lieu of the full amount.

Only after the notice letter, and the taxpayer’s failure to pay, will the IRS initiate collection proceedings. Typically, the IRS files a Notice of Federal Tax Lien if the taxpayer fails to pay. A tax lien is a claim to the delinquent taxpayer’s property that is used as security for unpaid tax debt. The IRS will also use wage garnishments and bank levies to collect unpaid taxes.

IRS Audit Procedures

The IRS performs audits to review financial information and assess whether tax return information was reported accurately.  Taxpayers are selected for audits at random and when the information reported on their returns does not match their tax documentation, such as W-2s or Forms 1099s.

Audits begin with a mailed letter or phone call informing the taxpayer that he or she is being audited. If the IRS contacts the taxpayer by phone, a letter will be sent confirming the audit. These notification letters usually list documents and other materials that must be sent to the IRS. After the IRS reviews the information sent, it makes a determination whether the information reported was correct. If the taxpayer disagrees with the determination, then the taxpayer may appeal within 30 days.

If a caller asks for financial information directly over the phone, it is likely a scam since the IRS usually sends a letter confirming an audit and listing documents that must be sent.

IRS Scam Alerts

In addition to failing to follow IRS procedures, there are other common scam indicators. For instance, scammers frequently require unusual payment methods and threaten serious consequences unless their victim makes an immediate payment.

Reports state that the IRS imposters require payments through pre-loaded debit cards or wire transfers. Frequently, scammers will request iTunes gift cards as payments, telling their victims that the IRS has partnered with iTunes. The real IRS normally does not accept over-the-phone payments, even with regular debt or credit cards.

Victims are also frequently told that if they do not pay immediately, they will be arrested, deported, or face suspension of drivers’ licenses. Unless you have committed a serious tax crime, it is more likely that the IRS put a tax lien on your property. Tax liens usually show up on credit reports because the IRS files a Notice of Federal Tax Lien to put other creditors on notice. If no tax lien appears on your credit report, it is unlikely that you need to pay taxes immediately.

If an “IRS employee” does not follow the procedures for tax collection, audits, and refunds laid out above, it is likely a scam.