With Kelly Erb, tax specialist and writer for Forbes.com
Seniors aren’t the only group targeted by scammers. On the other end of the spectrum, college students are perfect prey for fraudsters in IRS clothing.
Kelly Erb, a tax expert and writer for Forbes.com, has investigated what’s behind a new warning from the IRS regarding a scam aimed specifically at college students. In this case, the scammers phone the students saying that they owe a federal student tax which must be paid immediately by wire, usually by Moneygram, an untraceable form of payment, and, if they don’t comply immediately, the police will be contacted.
First of all, there is no such thing as a federal student tax; it’s simply another device aimed at this specific group of young people. The tactics used to frighten these students—who otherwise might be skeptical—include giving them information such as where they go to school, where they live, the name of a parent perhaps, and even their social security number, anything to make the caller sound legitimate. These schemes can be particularly frightening for a student dependent on student loans or financial aid and is unaware of tax laws or how the IRS works.
Kelly stresses that, no matter what the case, we should all be aware that the IRS will never make initial contact over the phone or via email. If there ever is an issue, the IRS will send a written letter through the mail stating exactly what you owe and why; and, furthermore, they will never call asking for verification of information. If that happens, you can be assured the scammers are on the other end of the line.
If money is legitimately owed to the IRS, they also will never demand payment in one form only, such as a Moneygram or a debit card, or even—and this has happened—with gift cards. Kelly says that over a million dollars have been paid out to these crooks in ITune cards from unsuspecting victims.
And never, never, she adds, should you engage with them over the phone thinking you can scare them because, as she says, “the problem is that these scammers, once they realize that you’re an easy victim and they get what they want, they don’t stop calling. They actually ramp up their efforts.” And then “the chances of you getting tricked are even greater because they can actually coax information out of you, maybe not money, but information about you that is very, very helpful to them, such as you might say, ‘I’m going to tell my dad. He’s a lawyer.’ ”
Kelly has a cautionary note for anyone who may be in default of student loan payments at some point in their lives: Never ignore any legitimate contact from the IRS concerning money that you owe for student debt. You can be assured you won’t be shipped off to debtor’s prison in some remote penal colony, but you will need to respond appropriately and to show up in court, if necessary.
As for targeting those scammers who are targeting vulnerable students, the IRS has issued a new warning at the beginning of this school year to both students and their parents to be vigilant and on the lookout for the bad guys on the phone or on your email.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: My guest is Kelly Erb, a tax specialist writing for Forbes Magazine, and she says in her bio, “Paying tax is painful, but reading about it shouldn’t be.” However, today, Kelly and I are not going to talk about taxes, I hope you guys are a little relieved, but a new scam, which is being perpetrated on unsuspecting students and parents now that school season is in full swing. Hi, Kelly, welcome to the show.
Kelly Erb: Hi, thanks for having me.
Steve Pomeranz: The IRS has issued a new warning to students and their families to be vigilant for scammers. What is the basic con here?
Kelly Erb: There’s a bunch of cons that are going on, but the one that’s targeting the students is a phone call basically that tells students that they need to pay a federal student tax. There actually isn’t such a tax, but students may not know this, and so they’re told that they have to immediately wire the money—not actually to the IRS, it’s just someone who claims to be collecting on behalf of the IRS—and, if that doesn’t happen, bad things can happen to the student or the family. It’s particularly troublesome for students who might be on financial aid or reliant on student loans because those folks are always worried that if they’re not compliant with taxes and other issues, then they could possibly be at risk for losing their aid. It’s something that’s causing students to panic, and IRS is sending out notices saying, “Please be aware that this is happening and it’s not real.”
Steve Pomeranz: Let’s dig a little deeper. First of all, these people who are calling are pretty professional. They know their side of the scam and they’re basically threatening to call the police if the money is not immediately wired or a Moneygram is not sent. A Moneygram is an untraceable method for transferring money so that would be the preferred method of a collection, I’m sure, but they also sound very legitimate because they have some piece of information that makes the call seem legit. What kind of things are they saying there?
Kelly Erb: They might tell the student that they know what college that they’re going to. They may know the student’s address. In some cases, they’ve managed to get other identifiable information, such as a social security number. The scams actually are on a spectrum of folks that are maybe copycatting other scams that they’ve heard about and maybe aren’t so professional all the way to folks who are really, really, very comfortable doing this because they’ve been doing it a while and they know what buttons to push. The folks that you have to worry about—because I know that a lot of people have been getting these robo calls from people from the IRS and you’ll hear some people say immediately, “I knew it was a scam.”
That certainly is happening, but what IRS is concerned about is that these folks are getting incredibly sophisticated, these scammers, and they know exactly what to say. Again, for students, many of whom may not have established lines of credit, may not be used to dealing with taxing authorities, it can be really scary to have someone call and say, “I know who you are. I know where you go to school. Here’s what you have to pay, and if you don’t do it, we’re going to take serious action.”
Steve Pomeranz: It can be quite terrifying. Let’s talk about some of the things that the IRS will never, never do. Why don’t you start?
Kelly Erb: The first one is the IRS is never going to initiate phone contact in terms of if you owe something or if there’s a question. Your first contact with the IRS is never going to be a phone call saying, “You must pay us X dollars or else.” That doesn’t mean the IRS would never call you, but generally, the IRS is only going to contact you by phone if you’ve been in contact with them first. Your first point of contact generally if you do owe a tax or if there’s a question about a new tax would be a letter that you would get in the mail, and it would say, “Dear Taxpayer, we have determined that you owe us X or you’ve made this mistake on your return,” and then it would tell you in that letter exactly what you’d need to do.
Steve Pomeranz: Those letters can be pretty unsettling. I know when I started my business in 1996 and started paying taxes on my own as a small corporation, I got a lot of correspondence from the IRS. The first batch pretty much shook me up, but basically, they were very reasonable, it was always some minor thing, and we always cleared it up and I got my accountant involved and so on. They’re just going to reach out to you. They’ve never called me. I would never expect a call, but it was always through the mail. That’s clue number one. What else will the IRS never do?
Kelly Erb: They’re never going to call or email you and ask you to verify personal information. Even if you get a phone call that is someone purporting to be from the IRS, but they’re not actually requesting that you pay, maybe they’re just saying, “We need you to verify a checking account number. We think there might be a problem with your social security number. Why don’t you tell me what it is?” That won’t happen. Not only will they not call you and demand payment, they will also not call you and ask you to verify personal information over the phone. They will also not email you and ask you to verify personal information. Again, that’s a wide range of things that they could ask, these scammers, but it generally includes checking account numbers, pin numbers, and also social security numbers.
Steve Pomeranz: Be smart about that, and they’ll never demand that you pay taxes without giving you the opportunity to question or appeal the amount that they say you owe. There’s no such thing as, “You better pay us now. Send us a check. Send us a wire. Send us a Moneygram or else we’re going to call 911 and have the police come out and get you.” That is frightening sounding and these guys and gals are very good at evoking fear, but, remember, the IRS will never do such thing. Give me one more thing that the IRS will never do.
Kelly Erb: The IRS will never tell you that you can only pay one way. That also should be a giveaway. If you do owe tax, which is why a lot of people get sucked into these scams, these scammers will call and they’ll say, “You have to pay by Moneygram or you have to pay by debit card only,” or—and this is becoming increasingly popular—some other form of gift card, believe it or not. The IRS has determined that there’s been over a million dollars that’s been paid out in iTunes cards. Again, it’s the kind of thing that you and I would think why in the world would anyone answer that and do that, but if you’re scared enough and if they sound legitimate enough, you could be sucked into that.
Steve Pomeranz: Let me get this straight. What are these scammers saying? That you’ve got a gift card and now you owe taxes on the gift card? Is that it?
Kelly Erb: No.
Steve Pomeranz: What is that?
Kelly Erb: They’re saying, “You need to pay us. We’re collecting on behalf of the IRS and the only way that you can pay is by a gift card or cash. For serious.
Steve Pomeranz: Oh, come on.
Kelly Erb: No, it’s true. A lot of Green Dot cards, for example, have been tagged as being involved in these scams, but, most recently, the iTunes and the gift cards. The first time I saw this, I thought, “Who in the world would actually believe it,” but the IRS has actually reported that there has been over a million dollars that has—again, it’s people that get nervous and they feel like if they can just pay the hundred dollars on the gift card, it’ll go away. The problem is that these scammers, once they realize that you’re an easy victim, so the first time you answer them and they get what they want, they don’t stop calling. They actually ramp up their efforts.
Steve Pomeranz: All right. If you receive a call from someone that sounds suspicious, just hang up. Really, just hang up.
Kelly Erb: Absolutely.
Steve Pomeranz: It’s not personal. Don’t worry about it.
Kelly Erb: There’s a lot of folks that feel like they should engage with a scammer, but that’s a terrible idea because some folks think that if they berate them or if they whistle in their ear or if they challenge them or try to be somebody they’re not that somehow they’re winning. “We’re going to get these scammers,” but these are professionals. In fact, if you don’t hang up, the chances of you getting tricked are even greater because they can actually coax information out of you, maybe not money, but information about you that is very, very helpful to them, such as you might say, “I’m going to tell my dad. He’s a lawyer.” Now they know your dad’s a lawyer. They may say, “Wait until my husband gets home. He works for the police.” What these scammers do, the ones that aren’t just collecting money, is they’re actually building a profile that they can turn around and sell. It’s identity theft. You have to be very careful about engaging.
Steve Pomeranz: My guest is Kelly Erb. She is a tax specialist writing for Forbes Magazine. Hey, I want to switch gears while we’re talking about students and the like. I read that when a Houston man was picked up by Deputy US Marshalls earlier, he claimed that he had been arrested for failing to pay a $1,500 student loan dating back to 1987. It sounded like he was being hauled off to creditors or debtor’s prison rather. What actually happened?
Kelly Erb: It is scary because as someone who does own student loans, you’re always worried about what might happen if you don’t pay, but in this situation, it’s a little more complicated than just not paying. It is true that he owed money from 1987 and it was a small amount at the time, and it ended up ballooning with fees and interest to more than $5,000, but he just didn’t pay it for a while and eventually the debt got transferred, and you may know that it’s pretty hard to discharge student loans. They just don’t go away if you don’t pay them. He was actually sued to pay what he owed years later, and he did not answer the complaint.
The government actually won a default judgment against him because, at that point, the loan had actually been transferred to the Department of Education since the Department of Education underwrites a lot of these loans. He didn’t pay and years went by; I think it was five more years went by. He still didn’t pay what he owed. He was actually ordered to appear at a deposition and explain why he wasn’t showing up to court if he wasn’t going to pay, and the court said if he doesn’t show up, he was going to be arrested, so it was an arrest warrant just like you would get for not showing up for jury duty and those kinds of things. They tried to serve the arrest warrant on him, and he was, not surprisingly, not cooperative and allegedly said that he also had a gun. There’s some controversy about whether or not that actually happened, but the US Marshal then called for backup, and he was arrested and it was a big deal at that point. There were Federal Marshals at his door banging down his door. He was arrested and his underlying behavior was that he had not paid a loan, but it spiraled a little bit out of control.
Steve Pomeranz: Sure.
Kelly Erb: The lesson, of course, you can learn from that is to always respond even if you don’t have the money to pay. You respond when the government says, “Be here or explain why you’re not going to pay.”
Steve Pomeranz: I always tell my kids, “Listen, if the IRS contacts you or something about your student loan, you can’t ignore it. You must respond because it does not go away.” I’m happy to hear that the real story is that we’re not shipping off student loan debt holders to any remote penal colonies in the Pacific.
Kelly Erb: Not just yet.
Steve Pomeranz: That’s a relief. My guest, Kelly Erb, tax specialist, writing for Forbes Magazine. Hey, Kelly, thanks so much for joining me.
Kelly Erb: Thank you.