More On Legal & Compliancefrom The Advisor's Professional Library
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
Taxpayers continue to receive calls from scammers posing as employees of the Internal Revenue Service, while the agency itself is being criticized for its failure to protect sensitive taxpayer information.
On Wednesday, the IRS reissued a warning to consumers based on 90,000 complaints the government has received about fraud that has caused some 1,100 individuals to lose an estimated $5 million.
"There are clear warning signs about these scams, which continue at high levels throughout the nation,” said IRS Commissioner John Koskinen, in a press release.
“A big red flag for these scams are angry, threatening calls from people who say they are from the IRS and urging immediate payment. This is not how we operate. People should hang up immediately,” Koskinen explained.
In March, J. Russell George, the Treasury Inspector General for Tax Administration (TIGTA) called the situation “the largest scam of its kind that we have ever seen."
At the time, some 20,000 complaints had been made about the fraud.
In other news, the government shared a report recently that disclosed more than a dozen cases in which the IRS awarded contracts that required access to taxpayer information without mandatory and complete background investigations of employees working for the outside contractors.
“Allowing contractor employees access to taxpayer data without appropriate background investigations exposes taxpayers to increased risk of fraud and identity theft,” said George, in a statement released Thursday.
Of 28 contracts reviewed, the inspector general's audit revealed five cases in which contractors had not had any background checks. For instance, a contractor working on printing and mailing tax forms was given a disk containing 1.4 million taxpayer names, Social Security numbers and other personal information.
In addition, TIGTA says it identified 20 contracts for which some contractor personnel did not sign nondisclosure agreements. The IRS subsequently issued more explicit guidance requiring the execution of nondisclosure agreements.
“Americans deserve to have their personal information treated securely and with discretion, and the IRS should follow the policies that are there to protect taxpayers from fraud and identity theft,” Rep. Diane Black, R-Tenn., said in a public statement on Thursday.
TIGTA outlined five recommendations to the IRS. The IRS agreed with four of them, but disagreed with a plan to review a waiver that exempts expert witnesses from background investigations.
“TIGTA believes that waiving the background investigation requirement presents a security risk,” the organization said in a statement on Thursday.
TIGTA’s issued its audit report to the IRS on July 7. However, it says it publicly released the report only this week “due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.”
Also this week, a U.S. District court judge in Washington opened an inquiry into the issue of missing emails associated with former IRS official Lois Lerner.
Judge Emmet G. Sullivan ordered the IRS to provide more details about Lerner’s computer troubles by Aug. 22.
The IRS maintains that Lerner’s hard drive crashed and was later erased after it was determined that no information could be retrieved. Lerner admitted last year that the agency had inappropriately subjected conservative and tea party organizations to extra scrutiny when determining if they were to get tax-exempt status.
The House of Representatives found her in contempt of Congress for refusing to testify under oath, determining that she waived her protections when she made a statement of innocence.
Judicial Watch is suing the IRS in federal court to obtain Lerner’s emails.
Tips to Avoid Fraud
When it comes to avoiding scammers, “Taxpayers should remember their first contact with the IRS will not be a call from out of the blue, but through official correspondence sent through the mail,” Koskinen noted.
The IRS adds that it:
- Never asks for credit card, debit card or prepaid card information over the telephone.
- Never insists that taxpayers use a specific payment method to pay tax obligations
- Never requests immediate payment over the telephone and will not take enforcement action immediately following a phone conversation. Taxpayers usually receive prior notification of IRS enforcement action involving IRS tax liens or levies.
Some other features of the current fraud schemes are that:
- Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
- Scammers may be able to recite the last four digits of a victim’s Social Security number.
- Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
- Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
- Victims hear background noise of other calls being conducted to mimic a call site.
- After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.
Steps taxpayers may want to take include:
- If they owe taxes or think they may owe taxes, call the IRS at 800-829-1040; the IRS employees at that line can help you with a payment issue, if there really is such an issue.
- If they know they don’t owe taxes or have no reason to think that owe any taxes, call and report the incident to TIGTA at 800-366-4484.
- If they’ve been targeted by this scam, they should also contact the Federal Trade Commission and use their FTC Complaint Assistant at FTC.gov; please add "IRS Telephone Scam" to the comments of your complaint.
Related on ThinkAdvisor: