MW Scammers called the IRS and stole $47 million in refunds, watchdog says

Andrew Keshner

The fraudsters posed as tax professionals when calling a special phone line

Phony tax professionals made a real score when they called Internal Revenue Service phone lines to access sensitive taxpayer information, filed fraudulent tax returns and walked away with tens of millions of dollars in refunds, according to a new watchdog report.

The scammers filed over 4,800 tax returns and claimed nearly $462 million in bogus refunds in a scheme that stretched from early August 2023 to the tail end of this past tax season in April, the report from the Treasury Inspector General for Tax Administration said.

The IRS was able to slam the brakes on payments for most of the returns, according to the report. But the taxman wasn't able to stop a total of 574 returns from going through - and the price was an estimated loss of more than $47 million in fraudulent refunds, the report said.

The TIGTA report faulted IRS management for not moving quick enough to stop the fraud. The incidents happened even though TIGTA officials alerted the IRS to beware of a certain type of impersonation swindle on the professional phone line. The report spoke of several alerts, one coming as late as February 2024. Other offices inside the tax collector identified this type of fraud in 2021, the report added.

The specifics about the con are redacted, but it centers on a toll-free phone line that's meant for tax practitioners trying to help their clients. Accountants, lawyers and other bona fide tax professionals use the line to get copies of the tax records that are necessary to file income-tax returns.

There's already an authentication process to determine the caller's identity. The IRS said that by April 8, it had trained all workers on the "practitioner priority service" lines how to use a higher form of authentication.

The IRS defended its work in a response letter within the TIGTA report, and in a statement. The agency said it acted fast to toughen security measures with the practitioner helpline, and that the fight to protect taxpayers and prevent fraud "remains a top priority." To fight this specific scheme, the IRS said it established teams to share information, which "led to a more rigorous authentication process."

"We implemented closer monitoring of tax professionals' online accounts to review suspicious activity and put in place other protective measures involving identified fraudulent accounts as well as blocked refunds associated with compromised accounts," the IRS statement said.

Siphoning $47 million is a big haul in one sense, but it's also relatively small from another view. The IRS issued over $325 billion in refund money to more than 100 million 2023 tax returns, according to statistics as of July.

The watchdog report comes as the IRS is upgrading its operations with nearly $60 billion in extra funding over a decade. The influx comes from the Inflation Reduction Act of 2022, originally with an $80 billion earmark. When the tax agency started tapping the money, its early moves included more hires to answer the regular phone lines that taxpayers call.

The TIGTA report doesn't concern those regular phone lines or the relatively new hires staffing them.

The people answering the practitioner priority service line, meanwhile, are some of the IRS's most experienced phone assistants because of the complicated issues arising on the calls, an IRS spokesperson said.

New hires usually start on other lines receiving easier calls and questions, and it takes several years before those representatives can make it over to the helpline for tax professionals, the spokesperson added.

-Andrew Keshner

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October 26, 2024 07:30 ET (11:30 GMT)

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