Lisa Bennett was at home on an ordinary afternoon when she received a call from Officer Jason Dean of the Investigative Office of the Treasury. He told her that an arrest warrant had been issued for failing to respond to the three IRS CP503 notices that had been sent to her, that her phone lines were being traced, and that she should not attempt to leave the city. When she protested that she had received no such notices, he responded with the high-handed disinterest of a powerful bureaucrat: “We’re only calling you as a courtesy to inform you that you will be arrested and charged with failure to meet federal taxation requirements, malicious conduct, and theft by deception. You will be arrested within the next two hours and held in custody for six months pending an investigation.”
Then he softened: There was someone who might be able to help her, but he could make no guarantees. He transferred her to another agent, who said that if he could get a 1099-C form for out-of-court restitution for cancellation of debt, he might be able to call off the police, whose calls were already showing up on her cell phone. But there was not much time. Soon she was racing to the bank with her teenaged son in tow, afraid to hang up the phone lest the arrest team descend.
It was a scam, of course. These were not IRS agents. Form 1099-C is not for cancelling your debts, but for reporting debts you’ve had cancelled by others (which the IRS quite properly regards as income). And while there are people who go to jail for tax evasion, you have to work pretty hard at defiant non-payment to actually get sent to the pokey. Also, agents of the IRS are not going to make it hard to verify that they are agents of the IRS — for instance if you want to call them back at an official number.
Thankfully, Bennett ultimately didn’t fall for it. She came to her senses when she was asked to send money … somewhere. But these tricks are successful often enough to continue.
What’s interesting about this scam is that it’s a departure from classic confidence schemes. Think about something like the Nigerian e-mail scams, and how they draw their victims in: greed for a lucrative finder’s fee in exchange for doing something that sounds maybe a little bit shady, but maybe sort of noble too. The victim is then strung along by playing to the greed, and kept from talking to others who might point out the scam by because they think they are complicit in something legally questionable.
The IRS scam, on the other hand, works entirely by fear. It takes people who haven’t done anything wrong, and makes them afraid that they have. That’s a pretty hefty achievement. Imagine trying to extort money from someone by, say, claiming that they had murdered someone. You might elicit laughter, or bewilderment, but you’d rarely elicit much cash.
Which raises the obvious question: How did we get into a situation where it’s so easy for people to believe that the IRS is about to arrest them for a crime they weren’t even aware of having committed?
You guessed it: The IRS is incredibly powerful, and the tax code is incredibly opaque.
Like many journalists, my husband and I pay someone to do our taxes. We have to. The year we married, I realized that with two journalists who both had salary and non-salary income, home offices, various business expenses, and a new home purchase, our taxes had finally passed the point at which I was even marginally competent to do them. Before then, I had always done my taxes myself, and filed them with a sort of wistful hope that I had done them correctly. At this point it seems worth pausing to note that: