Fraudsters have been active again this tax season, but the increasing power of artificial intelligence is helping supercharge the pervasiveness and danger of the tax scams being seen this year by researchers.
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By registering LLCs and obtaining legitimate EINs from the IRS, fraudsters are creating a “veneer of legitimacy” that bypasses traditional bank and government filters.
“What we find is that criminals steal folks’ identities in order to create fictitious companies and then use those companies to apply for new credit lines and then potentially engage in tax refund fraud,” Maimon told Accounting Today.
He has been monitoring secure communication apps like Telegram where he sees cybercriminals discussing fraudulent activity and identity theft. “I was able to find this guy who’s talking about the companies he’s created using stolen identities, and he was able to actually get Employment Identification Numbers for each of those companies in order to then engage in fraud,” said Maimon.
The fraudster shared about 10 companies’ names and identities with Maimon, as well as the driver license numbers and Social Security Numbers of the victims.
He has found that fraudsters follow a four-stage pipeline: acquiring identities, registering state LLCs, obtaining IRS EINs, and then opening business lines of credit. In studying 10 fraudulent businesses, he found criminal application activity nearly doubled immediately after an EIN was issued. Because these businesses appear to be active in state registries in states such as Arizona and Colorado as well as federal tax systems, they often pass through the standard onboarding checks without being detected.
Once the fraudulent businesses manage to hire employees who are unaware they are working for fictitious companies, they’re able to exploit those employees’ personal information to engage in tax fraud. “Essentially, what they will do is, once you have an EIN, you can start signing up employees, and you can start applying for tax refunds,” said Maimon.
Identity theft and tax fraud have been a longtime problem for the IRS, but the EIN scam adds another dimension to it.
“The IRS is now trying to figure out ways to prevent it, so instead of taking the identities and filing for their taxes, they create a company, they get an Employment Identification Number for the company, and then they start engaging in tax return fraud, in addition to other types of fraud they’re engaged in, such as business loans that they’re trying to get for those newly created businesses,” said Maimon.
Other cybersecurity experts are noticing artificial intelligence being used to help fuel tax scams this filing season.
“As millions of Americans prepare to file their tax returns, criminals are developing increasingly sophisticated ways to exploit the system,” said Dominic Forrest, chief technology officer at iProov, a facial-verification company used by governments to prevent identity fraud. “With the rise of artificial intelligence and deepfake technology, identity scams are becoming more sophisticated — and more convincing — than ever before. Tax scams have been around for years, often relying on familiar phishing tactics — fake emails or messages designed to trick people into handing over personal or financial information. What’s changed now is that criminals are beginning to use artificial intelligence to make these scams far more convincing.”
Anti-fraud experts are also leveraging AI to uncover fraud schemes. The Association of Certified Fraud Examiners recently released a
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