Bogus IRS forms conceal ID theft scam
By Kay Bell • Bankrate.com

Conscientious taxpayers make sure they accurately report all their interest income. These law-abiding filers also are likely to be victims of the latest scam to take advantage of the filing season.

The Office of the Comptroller of the Currency, the federal agency that regulates national banks, has issued a nationwide alert that fake letters and tax forms are going to account holders in an effort to obtain personal financial information.

As with many tax-related scams, this one takes a tax fact and twists it to separate honest individuals from their money. The ramifications in this case could be more severe: In addition to losing cash, an account holder's identity could be stolen.

Tax hook
One of the few drawbacks to earning interest on a bank or investment account is that you must pay tax on the money. Con artists are using this requirement to bait the latest scam hook.

Most account holders report interest income when they file their annual tax return. A few, however, have the applicable taxes taken out as the money is earned through what is known as backup withholding, similar to payroll withholding.

By citing the relatively infrequent practice of backup withholding, scammers are hoping to get their hands on bank account and personal data. The letter, purportedly from the bank, goes to account holders claiming to be an effort to ensure accounts remain exempt from backup tax withholding. An official-looking "Form W-9095" also is included with the correspondence.

The account holder is urged to complete the form and send it as soon as possible to the fax number provided. Failure to do so, the fake letter warns, could mean the bank will start withholding taxes on the account.

Not widely collected
But backup withholding on interest-bearing accounts is not that common.

It can come into play when an account holder refuses to provide a valid taxpayer identification number or gives out an incorrect one, either intentionally or by transposing numbers. Most banks, however, are diligent in getting a customer's correct tax ID (generally a Social Security number) when an account is opened.

Backup withholding also may be required if a taxpayer underreports interest or dividend income. In such cases, the IRS will notify the taxpayer before it asks the financial institution to begin taking out taxes. But generally, Uncle Sam trusts account holders to accurately report interest earnings. Of course, he double checks these amounts thanks to the 1099-INT and 1099-DIV copies he receives.

The con artists apparently are counting on few taxpayers knowing the backup-withholding rules. This unfamiliarity with tax laws, coupled with the fear of losing account interest to the tax collector and the pressure of tax-filing season could prompt unsuspecting account holders to turn over personal financial information.

Fake form enables ID theft
As for Form W-9095, it doesn't exist. This phony document appears to be based on the valid IRS Form W-9, Request for Taxpayer Identification Number and Certification.

Financial institutions sometimes ask customers to complete a W-9, a brief form with the primary goal of obtaining an ID number so that eventual earnings can be cross checked when the taxpayer files a return. In fact, an account number is not even required on a valid W-9.

The bogus form, however, wants much more: marital status, place of birth, parents' names, account number, passport information, work history, PINs and passwords. Such detailed personal information is consistent with identity theft schemes, and the OCC warns that it gives the scam perpetrator "all the necessary customer information to appear credible."

Report and follow up
If you received the scam correspondence but did not reply, you still should call your bank to report it. This will give the financial institution a heads-up to alert other customers.

If you unwittingly complied with the fake information query, again immediately alert your bank. Then notify all other financial institutions with which you do business. And don't forget to contact the fraud department of the three major credit bureaus to report possible identity theft:

If you discover any accounts have been fraudulently accessed or opened, also contact the security department of each affected creditor or financial institution. Consider closing these accounts.

OCC recommends that compromised account holders also file a report with the local police department or the police where the identity theft took place. A copy of the police report could be useful in case your bank, credit card company or others later need proof of the crime.

Finally, the IRS wants your help in keeping track of tax-related scams. Even if you did not fall for the scam, the agency asks that you report the event to its criminal investigation unit via its toll-free hotline at (800) 829-0433.

-- Posted: April 9, 2002