Taxpayer Scams Prey on M&D Companies by Exploiting Their Good Intentions
Fraudsters are taking advantage of complex tax regulations to intimidate manufacturing and distribution companies into forking over large amounts of money. These scams are particularly effective because they prey on their victims’ better instincts to quickly settle a debt or resolve a dispute, and they use threatening and confusing language to compel them to pay sizeable “fines” or phony tax bills.
Most manufacturing and distribution companies fit the small-to-medium size profile that scammers prefer.
As a taxpaying business owner or leader, you should be aware of these tactics so you don’t succumb to fraud, too. But if you do get scammed, or if someone even attempts to defraud you by posing as an IRS agent or a tax court representative, it’s imperative that you report the incident to the authorities.
How manufacturing and distribution companies get scammed
Most manufacturing and distribution companies fit the small-to-medium size profile that scammers prefer. Your identifying information tends to be more exposed, and scammers use that data to appear legitimate and lead you to believe they are the officials they pretend to be. Many of your office functions are outsourced, like payroll and taxes, so you may not have first-hand knowledge and experience with these issues, making it easier to be deceived about your related compliance obligations.
Here’s how a taxpayer scam typically works: A scammer gets something like your employer identification number or the last four digits of your personal social security number. The scammer contacts you directly and says that he or she is from the IRS or other taxing authority. The call or email appears authentic; sometimes the caller ID on your phone even says “Internal Revenue Service,” or the sender’s email address looks valid and official.
Most people in this situation will feel alarmed or at least unsure, and the scammer uses that against you. He or she says that you are in arrears on a tax bill or out of compliance on a vague and complicated regulation, and the charge sounds serious. The phony agent may be aggressive and threaten arrest without immediate payment. Or he or she may come across as sympathetic and helpful, offering you a way out of the predicament by settling the outstanding debt right now to avoid prosecution or steeper financial penalties.
In such a high-pressure, confusing situation, many business owners or finance staff members comply with the scammer’s illegitimate demands. Some are defrauded smaller amounts, while others turn over tens of thousands of dollars. American taxpayers exhibit high rates of voluntary compliance with the law and are conditioned to comply with constantly changing rules and increasing regulatory complexity, so attacks such as these work so well because they target our inclination to simply follow the law. Above all, most honest business owners just want to do the right thing — a virtue that scammers exploit for their own gain.
How to prevent taxpayer scams at your company
Businesses are commonly told by their tax accountants that the IRS will never call unbidden, but in the modern world phone calls are only one way scammers make contact. Newer modes of attack include:
- Phishing emails purporting to be from the IRS or a tax courts, some include details on specific offenses
- Threatening voicemails demanding payment or saying you will be arrested
- Text messages offering simple payment solutions
- Phone calls where the “agent” tries to keep you on the phone until you pay
- Messages on social media accounts
The IRS will not contact you by any of these means, and it will not demand any payments or personal or financial information via these mediums. Nor will it ever require immediate payments by prepaid debit cards or money transfers. Don’t ever give in to demands of that nature.
Threat of legal action is the main method of coercing taxpayers into a false choice between arrest and immediate payment. Legitimate IRS special agents do in fact conduct criminal investigations of suspicious taxpayer conduct, but they won’t try to strong-arm you into making immediate payments. To be safe, talk to the caller as you would in interacting with a police officer. Tell him or her you wish to consult with your attorney before discussing the matter further, especially if you are being bullied into immediate action. Scammers use intimidation to hurry you into a bad decision; neutralize the pressure by asking for the special agent’s name and a call-back number while you contact your attorney. Anyone resisting that request is most likely illegitimate.
To protect your business and yourself, be aware of ongoing scam tactics and schemes. Keep your employees informed and up to date as well.
Report attempted or successful scams
If you receive a phone call claiming to be the IRS and making demands such as immediate payment or threatening arrest or legal action, file a report with the Treasury Inspector General of Tax Administration (TIGTA). Report all unsolicited email claiming to be from the IRS by forwarding the email and all attachments to email@example.com. Never reply directly to a scam email or open any of the attachments.
Reporting is never time wasted. TIGTA has assisted in pursuing charges against a call center scam located in a foreign country that has already resulted in several guilty pleas. Enforcement takes time, and reports of successful prosecutions rarely make headlines, but the best way to push back against this targeted threat is to report as many occurrences as possible.
How we can help
Knowledge of these scams is your best prevention against them, and reporting them helps authorities with their efforts at prosecuting perpetrators. A stronger initial layer of information security, however, can help keep fraudsters at bay. CLA’s manufacturing and distribution professionals can work with you to understand your exposure to risk and shore up any vulnerabilities.