The W-2 scam – called a business email compromise or BEC – is one of the most dangerous phishing email schemes trending nationwide from a tax administration perspective. The IRS saw a sharp increase in the number of incidents and victims during the 2017 filing season.
Increasing awareness about business email compromises is part of the “Don’t Take the Bait” campaign, a 10-part series aimed at tax professionals. The IRS, state tax agencies and the tax industry, working together as the Security Summit, urge practitioners to learn to protect themselves and their clients from BEC scams.
A business email compromise occurs when a cybercriminal is able to “spoof” or impersonate a company or organization executive’s email address and target a payroll, financial or human resources employee with a request. For example, fraudsters will try to trick an employee to transfer funds into a specified account or request a list of all employees and their Forms W-2.
“These are incredibly tricky schemes that can be devastating to a tax professional or business,” said IRS Commissioner John Koskinen. “Cybercriminals target people with access to sensitive information, and they cleverly disguise their effort through an official-looking email request.”
The Federal Bureau of Investigation reported earlier this year that there has been a 1,300 percent increase in identified losses – with more than $3 billion in wire transfers – since January 2015. The FBI found that the culprits behind these scams are national and international organized crime groups who have targeted businesses and organizations in all 50 states and 100 countries worldwide.
During the 2016 filing season, the IRS first warned businesses that the scam had migrated to tax administration and scammers were using business email compromise tactics to obtain employees’ Forms W-2. The criminals were immediately filing fraudulent tax returns that could mirror the actual income received by employees – making the fraud more difficult to detect.
In 2017, the IRS saw the number of businesses, public schools, universities, tribal governments and nonprofits victimized by the W-2 scam increase to 200 from 50 in 2016. Those 200 victims translated into several hundred thousand employees whose sensitive data was stolen. In some cases, the criminals requested both the W-2 information and a wire transfer.
The Form W-2 contains the employee’s name, address, Social Security number, income and withholdings. That information was used to file fraudulent tax returns, and it can be posted for sale on the Dark Net, where criminals also seek to profit from these thefts.
If the business or organization victimized by these attacks notifies the IRS, the IRS can take steps to help prevent employees from being victims of tax-related identity theft. However, because of the nature of these scams, many businesses and organizations did not realize for days, weeks or months that they had been scammed.
The IRS established a special email notification address specifically for businesses and organizations to report W-2 thefts: firstname.lastname@example.org. Be sure to include “W-2 scam” in the subject line and information about a point of contact in the body of the email. Businesses and organizations that receive a suspect email but do not fall victim to the scam can forward it to the BEC to email@example.com, again with “W-2 scam” in the subject line.
Protecting Clients and Businesses from BECs
The IRS urges tax professionals to both beware of business email compromises as a threat to their own systems and to educate their clients about the existence of BEC scams. Employers, including tax practitioners, should review their policies for sending sensitive data such as W-2s or making wire transfers based solely on an email request.
Tax professionals should consider taking these steps:
- Confirm requests for Forms W-2, wire transfers or any sensitive data exchanges verbally, using previously-known telephone numbers, not telephone numbers listed in the email.
- Verify requests for location changes in vendor payments and require a secondary sign-off by company personnel.
- Educate employees about this scam, particularly those with access to sensitive data such as W-2s or with authorization to make wire transfers.
- Consult with an IT professional and follow these FBI recommended safeguards:
- Create intrusion detection system rules that flag e-mails with extensions that are similar to company email. For example, legitimate e-mail of abc_company.com would flag fraudulent email of abc-company.com.
- Create an email rule to flag email communications where the “reply” email address is different from the “from” email address shown.
- Color code virtual correspondence so emails from employee/internal accounts are one color and emails from non-employee/external accounts are another.
- If a BEC incident occurs, notify the IRS. File a complaint with the FBI at the Internet Crime Complaint Center (IC3.)