The Rise

of Tax Fraud and the Impact of Artificial Intelligence

 The Rise of Tax Fraud and the Impact of Artificial Intelligence The rise of artificial intelligence has given way to new realms of possibilities but it has opened gateways to serious tax scams. The IRS is waging a continuous battle against these pervasive issues. In 2023, AI-based frauds were named on the IRS's Dirty Dozen list. Among the scams are those regarding large refunds, fraudulent emails, and unqualified suggestions on social media. In a report released by the Federal Trade Commission, it was highlighted that in 2022, people were scammed out of $8.8 billion - an alarming increase from 2021's $2 billion loss.

The Emergence of Generative AI in Criminal Activities

To understand AI-generated tax fraud, you should be familiar with the terms phishing and smishing. Phishing refers to a form of a malevolent email typically dispatched by criminals who aim to impersonate the IRS or other lawful organizations. 

Often compared to phishing, smishing is a technique used by scammers involving text or SMS messages sent through a smartphone. These messages typically include threatening language like "Your account has now been put on hold" or "Unusual Activity Report" with an attached link. Smishing has been utilized for Covid relief opportunities, tax credit scams, and fake assistance in setting up an IRS online account - all with the intent of having the unsuspecting user click on a link that can be used to glean personal information from them or even launch malicious code onto their phone.

It is no surprise that cybercriminals are turning to Generative AI in their criminal activities. Generative AI enables them to craft convincing phishing emails and phone scripts impersonating the IRS, which can be particularly dangerous for those unfamiliar with how the IRS operates. The scammers have found new and lucrative ways to try to steal information from taxpayers. These new tools craft deceptive emails that appear genuine and are targeted at unsuspecting taxpayers, where previously malicious messages could be distinguished via spelling and grammar mistakes. The content of these emails is designed to lure in unsuspecting victims with fabricated but enticing offers, such as a bogus tax return or non-existent legal charges, to deceive and defraud them. This technology can be used to create not only phishing and malware emails but also calls disguised as coming from an Internal Revenue Service (IRS) agent - known as “deep fakes”. 

Whereas previously one could differentiate malicious messages from legitimate ones through spelling and grammar errors, as well as inaccuracies with the tax code, these new tools craft deceptive emails that appear genuine and are targeted towards unsuspecting taxpayers. In recent years, the potential for success of tax scams has been pushed ever higher due to the development of Artificial Intelligence (AI) chatbots.

Combatting AI-Generated Tax Scams: The Role of the IRS

As AI-generated tax scams become more prevalent in the US, the Internal Revenue Service (IRS) is actively combating them. The IRS uses advanced technology, such as Artificial Intelligence (AI), to identify potential fraud, conduct investigations, and educate citizens on how to protect themselves. By utilizing innovative approaches, the IRS can outwit criminals and safeguard taxpayers from falling victim to tax fraud.

Protecting Yourself from Tax Fraud: Actionable Steps to Take

To combat AI-generated tax scams, a comprehensive course of action must be taken. To protect yourself:

  • Remain aware and avoid responding to emails or calls claiming to be from the IRS.

  • Refuse to provide sensitive information over the phone or through email.

  • Implement AI-powered algorithms to identify patterns and inconsistencies in tax returns.

  • Utilize secure messaging and email domains for improved communication.

  • Develop algorithms that can identify fraudulent content in emails and calls.

  • Refrain from opening any attachments. Even though they may seem harmless, these files can contain malicious code that could harm your computer or cellular phone.

If you have entered confidential information on a suspicious email or website, you should visit the IRS identity protection page as soon as possible. Additionally, you should send an email with the full headers to phishingatirs [dot] gov along with details such as contact information (email/phone number), the date, time, and applicable time zone, and any numbers included in the message. To further ensure your safety, delete the original email or text after completing this process.

It is important to note that illegal tax avoidance plans can lead to serious repercussions, such as fines, a prison sentence, and the need to pay back taxes with added interest. Any known abusive tax dodges must be reported to protect yourself and support law enforcement.