'This is the largest scam of its kind that we have ever seen,' an IRS official says. | John Shinkle/POLITICO Report: IRS scam sweeps nation

Halah Touryalai, a Forbes staff writer, got a call and a threat from what she thought was an Internal Revenue Service agent: You owe $5,000. Pay up now, or we’ll arrest you.

She froze.


“For the next five or so minutes, I listened in absolute panic,” Touryalai wrote in an op-ed describing the incident.

The largest-ever IRS tax scam is pulsing through the nation in the middle of tax season, an IRS watchdog investigating the matter said on Thursday. IRS impersonators are calling taxpayers, demanding hundreds and thousands of dollars in alleged unpaid taxes.

( PHOTOS: 10 slams on the IRS)

“This is the largest scam of its kind that we have ever seen,” said J. Russell George, the Treasury’s inspector general for tax administration. “Do not become a victim.”

Touryalai’s caller knew the last four digits of her Social Security number and where she worked. Accusing her of tax dodging, he warned that the government was about to seize her property, freeze her bank accounts, and suspend her driver’s license and passport until she paid up.

He even threatened jail time and to “blacklist” her name.

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Eventually she caught on — the man was a phony, one of many who have cheated thousands of Americans in just about every state in recent weeks.

Not everyone was as lucky. The con men have duped people into paying at least $1 million, TIGTA says.

They’ve heard reports of at least 20,000 instances, a record number of contacts for any known IRS scam.

Reports of the scheme have popped up around the nation from Delaware to Washington state, throwing a wrench into tax filing season.

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“The scam, while ridiculous, has great potential to harm people,” said Robert Kerr, senior director of government relations for the National Association of Enrolled Agents (NAEA).

TIGTA is working with with local law enforcement to root out the fraudsters and has also contacted phone providers and nontraditional Internet companies such as Skype — though TIGTA wouldn’t say which companies specifically it is working with.

Investigators also wouldn’t specify how many they believe are part of the sham, only that their “hunch is it’s a script that’s being shared by a close group.”

Investigators are following the money trail but say it’s premature to say where it’s leading.

They said they haven’t seen anything like this since the 2006 filing season when “phishing” websites snagged taxpayers searching for how to contact the IRS and pull their information.

“The telephone stuff has been off and on over the decade … but I can’t remember the last time we had this type of volume or even close to it,” a senior TIGTA official told reporters on a call Thursday.

The scheme is sophisticated: Impersonators not only have names and phone numbers, they also have the last four digits of the victims’ Social Security numbers.

Scammers have also found a way to spoof caller-ID systems so that they readas though the IRS is calling, and they follow up with emails using official-looking IRS logos and language that can easily trick people.

They give fake names and even phony IRS badge numbers.

“It’s working,” the TIGTA official said of the scam. “For every day that goes by there’s 100 or 200 more contacts.”

In Washington state, Clark County Sheriff’s Office Detective Jason Granneman has worked with a number of area residents contacted by the scam. He says the phony IRS agents tried to scare people there by saying they “know where you live,” what kind of cars the victims drive and the color of their houses — probably from Google Earth, he speculated.

“Of course it freaks people out,” he said. “You’re scared and all of sudden they know all these details about you, so you think, ‘Well this is the IRS and I don’t want to go to jail.’”

Granneman said he traced one of the calls, which was routed through Jamaica. The person who picked up on the other line sounded like he was from Jamaica, too, he speculated — though the scammer promptly hung up.

Robert Reedy, a tax specialist at Los Alamitos, Calif.-based Associated Tax Services who had a client contacted by the scam, also called a number back and said someone with a “foreign accent” picked up.

“I could hear voices in the background that seemed to indicate that this was a phone answered in a boiler room, a place with a lot of phones and a bunch of individuals who were reading from a script,” he said in an email that was forwarded to NAEA and then to the IRS.

NAEA has been warning to its members, who advise taxpayers.

Dave Shaw, the president and CEO of his own tax preparation business, said one of his clients was told they owed $20,000 due to interest and fines on a $2,500 balance due from 2008.

“We are filing the identity theft form … for the client and I have instructed him to monitor his credit and put an alert on his credit report as well that he might be a victim of identity theft,” Shaw wrote in an email to other tax preparers.

The callers tell victims they owe taxes and must pay using a prepaid debit card or wire transfer. The calls come with threats: arrest, prosecution and — if the victims are immigrants — deportation.

When the scam first began back in August of last year, victims were often people of “questionable residency status,” the TIGTA official said.

“So naturally, if you’re worried about your residency status, and somebody called you and threatened you and either you pay this money… or they turn you over and get you deported, you may pay that money,” the official said.

Now the scope has expanded, he continued: “It’s anybody. All walks of life. All professions.”

TIGTA says they’re trying to figure out why certain people are contacted and believe it’s random but could also be taken from phone books.

“In some cases we think it’s even out of a phone book because there have been individuals that live in the vicinity of each other that have been contacted, so it could be nothing more complicated then someone sitting with the white pages and looking down the row making phone calls.”

That’s not how the IRS really operates, TIGTA warns.

“The IRS usually first contacts people by mail – not by phone – about unpaid taxes,” a TIGTA warning released on Thursday said. “And the IRS won’t ask for payment using a prepaid debit card or wire transfer. The IRS also won’t ask for a credit card number over the phone.”

“If someone unexpectedly calls claiming to be from the IRS and uses threatening language if you don’t pay immediately, that is a sign that it really isn’t the IRS calling,” George said.

The IRS also never requests personal or financial information over email, text and social media.