Feb 19 2018

Krebs on Security 2018-02-19 10:44:49

Identity thieves who specialize in tax refund fraud have been busy of late hacking online accounts at multiple tax preparation firms, using them to file phony refund requests. Once the Internal Revenue Service processes the return and deposits money into bank accounts of the hacked firms’ clients, the crooks contact those clients posing as a collection agency and demand that the money be “returned.”

In one version of the scam, criminals are pretending to be debt collection agency officials acting on behalf of the IRS. They’ll call taxpayers who’ve had fraudulent tax refunds deposited into their bank accounts, claim the refund was deposited in error, and threaten recipients with criminal charges if they fail to forward the money to the collection agency.

This is exactly what happened to a number of customers at a half dozen banks in Oklahoma earlier this month. Elaine Dodd, executive vice president of the fraud division at the Oklahoma Bankers Association, said many financial institutions in the Oklahoma City area had “a good number of customers” who had large sums deposited into their bank accounts at the same time.

Dodd said the bank customers received hefty deposits into their accounts from the U.S. Treasury, and shortly thereafter were contacted by phone by someone claiming to be a collections agent for a firm calling itself DebtCredit and using the Web site name debtcredit[dot]us.

“We’re having customers getting refunds they have not applied for,” Dodd said, noting that the transfers were traced back to a local tax preparer who’d apparently gotten phished or hacked. Those banks are now working with affected customers to close the accounts and open new ones, Dodd said. “If the crooks have breached a tax preparer and can send money to the client, they can sure enough pull money out of those accounts, too.”

Several of the Oklahoma bank’s clients received customized notices from a phony company claiming to be a collections agency hired by the IRS.

The domain debtcredit[dot]us hasn’t been active for some time, but an exact copy of the site to which the bank’s clients were referred by the phony collection agency can be found at jcdebt[dot]com — a domain that was registered less than a month ago. The site purports to be associated with a company in New Jersey called Debt & Credit Consulting Services, but according to a record (PDF) retrieved from the New Jersey Secretary of State’s office, that company’s business license was revoked in 2010.

“You may be puzzled by an erroneous payment from the Internal Revenue Service but in fact it is quite an ordinary situation,” reads the HTML page shared with people who received the fraudulent IRS refunds. It includes a video explaining the matter, and references a case number, the amount and date of the transaction, and provides a list of personal “data reported by the IRS,” including the recipient’s name, Social Security Number (SSN), address, bank name, bank routing number and account number.

All of these details no doubt are included to make the scheme look official; most recipients will never suspect that they received the bank transfer because their accounting firm got hacked.

The scammers even supposedly assign the recipients an individual “appointed debt collector,” complete with a picture of the employee, her name, telephone number and email address. However, the emails to the domain used in the email address from the screenshot above (debtcredit[dot]com) bounced, and no one answers at the provided telephone number.

Along with the Web page listing the recipient’s personal and bank account information, each recipient is given a “transaction error correction letter” with IRS letterhead (see image below) that includes many of the same personal and financial details on the HTML page. It also gives the recipient instructions on the account number, ACH routing and wire number to which the wayward funds are to be wired.

A phony letter from the IRS instructing recipients on how and where to wire the money that was deposited into their bank account as a result of a fraudulent tax refund request filed in their name.

Tax refund fraud affects hundreds of thousands, if not millions, of U.S. citizens annually. Victims usually first learn of the crime after having their returns rejected because scammers beat them to it. Even those who are not required to file a return can be victims of refund fraud, as can those who are not actually due a refund from the IRS.

On Feb. 2, 2018, the IRS issued a warning to tax preparers, urging them to step up their security in light of increased attacks. On Feb. 13, the IRS warned that phony refunds through hacked tax preparation accounts are a “quickly growing scam.”

“Thieves know it is more difficult to identify and halt fraudulent tax returns when they are using real client data such as income, dependents, credits and deductions,” the agency noted in the Feb. 2 alert. “Generally, criminals find alternative ways to get the fraudulent refunds delivered to themselves rather than the real taxpayers.”

The IRS says taxpayer who receive fraudulent transfers from the IRS should contact their financial institution, as the account may need to be closed (because the account details are clearly in the hands of cybercriminals). Taxpayers receiving erroneous refunds also should consider contacting their tax preparers immediately.

If you go to file your taxes electronically this year and the return is rejected, it may mean fraudsters have beat you to it. The IRS advises taxpayers in this situation to follow the steps outlined in the Taxpayer Guide to Identity Theft. Those unable to file electronically should mail a paper tax return along with Form 14039 (PDF) — the Identity Theft Affidavit — stating they were victims of a tax preparer data breach.

Feb 10 2016

IRS website attack nets e-filing credentials for 101,000 taxpayers

The US Internal Revenue Service was the target of a malware attack that netted electronic tax-return credentials for 101,000 social security numbers, the agency disclosed Tuesday.

Identity thieves made the haul by using taxpayers' personal data that was stolen from a source outside the IRS, according to a statement. The attackers then used an automated bot against an application on the IRS website that provides personal identification numbers for the electronic filing of tax returns. In all, the hackers made unauthorized queries against 464,000 social security numbers but succeeded against only 101,000 of them.

No personal information was obtained from the IRS systems. Agency officials are flagging the accounts of all affected taxpayers and plan to notify them by mail of the incident. The IRS is also working with other government agencies and industry partners to investigate the hack or stem its effects. The hack occurred last month.

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May 26 2015

IRS: Crooks Stole Data on 100K Taxpayers Via ‘Get Transcript’ Feature

In March 2015, KrebsOnSecurity broke the news that identity thieves engaged in filing fraudulent tax refund requests with the Internal Revenue Service (IRS) were using the IRS’s own Web site to obtain taxpayer data needed to complete the phony requests. Today, IRS Commissioner John Koskinen acknowledged that crooks used this feature to pull sensitive data on more than 100,000 taxpayers this year.

Screenshot 2015-03-29 14.22.55That March story — Sign Up at IRS.gov Before Crooks Do It For You — tracked the nightmarish story of Michael Kasper, one of millions of Americans victimized by tax refund fraud each year. When Kasper tried to get a transcript of the fraudulent return using the “Get Transcript” function on IRS.gov, he learned that someone had already registered through the IRS’s site using his Social Security number and an unknown email address.

Koskinen was quoted today in an Associated Press story saying the IRS was alerted to the thieves when technicians noticed an increase in the number of taxpayers seeking transcripts. The story noted that the IRS said they targeted the system from February to mid-May, and that the service has been temporarily shut down. Prior to that shutdown, the IRS estimates that thieves used the data to steal up to $50 million in fraudulent refunds.

“In all, about 200,000 attempts were made from questionable email domains, with more than 100,000 of those attempts successfully clearing authentication hurdles,” the IRS said in a statement. “During this filing season, taxpayers successfully and safely downloaded a total of approximately 23 million transcripts.”


The Government Accountability Office (GAO) estimates that thieves steal nearly $6 billion from state and federal coffers last year via tax refund fraud. This year, fraudsters changed their tactics, leading to a huge spike in attempted fraudulent refund requests — particularly at the state level.

Earlier this week, I had an opportunity to interview John Valentine, chair of the Utah State Tax Commission. Valentine said this year his state saw a tenfold increase in suspicious tax refund filings, and that most of that increase was the result of a type of tax fraud the state had never seen before.

“This was unique, where someone clearly had the information from the prior year’s tax return,” Valentine said. “That different significantly from the way the return comes across if it’s just ID theft. If you have the prior year’s return, you have the names of children, their Social Security numbers and other data you don’t often times get with ID theft.”

These suspicious returns all had the filing status exactly the same [as the year prior], the number of exemptions exactly the same….you even got spelling errors on addresses and names, so that the same errors that occurred in the 2013 return occurred in the fraudulent 2014 return,” Valentine explained. “That’s what told us we were dealing with a different kind of fraud, especially since the extent of the fraud was ten times the amount of fraud we’d seen in the past.”

Valentine said he believes most of that increase was due to lax authentication and security at third-party tax preparation firms (TurboTax, for example). Based on numerous stories about poor authentication and virtually nonexistent “know-your-customer” procedures at TurboTax, I’ve no doubt the nation’s leading tax preparation firm contributed considerably to the spike. But that same data that Valentine references also could be had by pulling taxpayer data from the IRS’s site, which until very recently offered the full previous year’s W2 information on taxpayers.

Stay tuned over the next week for more in-depth stories and interviews about how the states are grappling with tax return fraud, and the changes they are seeking to the status quo.