The rise of AI in tax rebate scams: a wake-up call for businesses in 2025

Introduction

Tax rebate scams are a sophisticated form of fraud in which scammers impersonate tax authorities to deceive individuals into sharing sensitive information or making payments under false pretenses. With the increasing use of AI, fraudsters can now create highly convincing phishing emails, text messages, and even phone calls, making these scams more difficult to detect than ever before.

Understanding tax rebate scams

Tax rebate scams are widespread, leading to significant financial losses for individuals and businesses. These scams typically involve fraudulent communications, such as emails, phone calls, or letters that appear to originate from legitimate tax authorities like the UK’s HM Revenue and Customs (HMRC) or the Internal Revenue Service (IRS) in the US. Their primary aim is to trick victims into providing personal details, such as Social Security numbers, bank account information, or payment details.

Tax rebate scams often take several forms:

• Phishing scams: Fraudsters create fake emails or websites that mimic official tax authority platforms, intending to steal sensitive personal or financial information.
• Identity theft scams: Scammers use stolen personal information to file fraudulent tax rebate claims on behalf of their victims.
• Fake rebate offers: Fraudulent submissions of tax rebate applications or related documents to claim rebates under false pretenses.

Recognizing and understanding these scams is vital for protecting your personal and financial information during tax season.

The role of AI in tax rebate scams

The integration of AI in tax rebate scams has elevated the sophistication of fraudulent activities, making them harder to detect and prevent. AI enables scammers to create hyper-realistic phishing emails, text messages, and voice calls that mimic legitimate tax authorities with uncanny accuracy. Advanced AI tools are also used to generate synthetic identities and automate fraudulent tax rebate claims, allowing scammers to operate at scale with minimal effort. Furthermore, AI-powered chatbots can engage with victims in real time, enhancing the illusion of legitimacy and increasing the likelihood of extracting sensitive information or payments. This evolution in scam tactics highlights the critical need for financial institutions and individuals to adopt AI-driven fraud detection systems to stay ahead of increasingly cunning cybercriminals.

Challenges for financial institutions in 2025 during tax season

• Sophisticated deception techniques: AI allows fraudsters to craft realistic communications that are almost indistinguishable from legitimate tax authority messages.
• Regulatory compliance: Institutions must comply with complex frameworks while ensuring robust fraud prevention. HMRC and the IRS emphasize vigilance in combating tax scams.
• Resource constraints: Smaller institutions may struggle to allocate the necessary resources to implement advanced fraud detection systems effectively. Falling victim to scams can lead to significant tax debt for individuals and businesses.

Identifying and preventing tax-related identity theft and rebate scams

Common red flags

• Unsolicited communications: Emails or messages claiming eligibility for a tax rebate without prior notification.
• Urgent requests: Pressure to provide sensitive information or make immediate payments.
• Unusual payment methods: Demands for gift cards, wire transfers, or cryptocurrency payments.
• Unsolicited requests for tax forms: Be cautious of emails requesting sensitive tax forms. The IRS will not request these forms through email, and such requests can be a red flag for scams.

Regional insights: The tax rebate landscape

United States

The Internal Revenue Service (IRS), as the federal agency responsible for tax collection and enforcement, has witnessed a rise in sophisticated, AI-driven scams. These fraudulent activities include fake IRS notices, phishing emails, and voice phishing using AI-generated voices, leveraging emotional manipulation to deceive victims. Scammers increasingly mimic official IRS correspondence, replicating authentic logos, letterheads, and language. The IRS enforces stringent compliance requirements to mitigate tax fraud and evasion. Guidelines emphasize that the IRS will not initiate contact through email, text, or social media, and only uses mail when necessary. Reports of fraud can be submitted via the IRS’s dedicated channels, helping address these evolving threats.  The IRS continues to update its strategies and guidelines, encouraging financial institutions to adopt robust identity verification processes. These measures not only enhance compliance but also protect taxpayers against emerging AI-powered fraud schemes.

United Kingdom

His Majesty's Revenue and Customs (HMRC), the UK's tax authority, plays a critical role in combating tax scams and fraud while enforcing compliance with regulations such as the Taxes Management Act 1970. HMRC emphasizes vigilance in addressing fraudulent activity, particularly as the Self Assessment tax return deadline of January 31, 2025, approaches.

From November 2023 to October 2024, HMRC received nearly 150,000 scam referrals, with approximately half involving fake tax rebate claims. Phishing emails, texts, and phone calls claiming to offer tax refunds or threatening penalties are key tactics employed by scammers. These communications often mimic official HMRC branding and language to deceive taxpayers.

According to Victoria Wilson, Staffordshire County Council’s Cabinet Member for Communities and Culture, “Scammers use fear and urgency to manipulate individuals into acting quickly without thinking. It’s crucial to stay alert and never provide personal or financial information to anyone you’re unsure about.”

How Veriff can help

Veriff’s advanced fraud prevention solutions empower financial institutions to combat tax scams effectively. 

To address phishing scams, Veriff provides biometric authentication as an additional layer of security. Even if a fraudster attempts to obtain a victim's credentials, potentially including an MFA code, they will hit a wall when the system asks for a biometric match. Veriff also prevents identity theft by thoroughly checking all historical data associated with an identity and detecting potential misuse by third parties, ensuring the user presenting the identity document is the legitimate owner.

For fake rebate offers involving high-velocity transactions from the same user or group, Veriff's velocity abuse detection can help solve the multi-accounting problem and limit the number of attempts per user.

Velocity/Abuse

Velocity/Abuse ensures no end-user abuses your service via multi-accounting. Taking into account all of the information we see through crosslinks, we can automatically shut down users if they, their document, or device have been approved before. We have three velocity checks that can be activated altogether or independently from each other:

• Duplicated user - checks whether the person has been approved before
• Duplicated document - checks whether the document has been approved before
• Duplicated device - checks whether the same device has been approved before

 By deploying Veriff's advanced fraud detection capabilities, businesses can trust their systems and protect customers from falling victim to these AI-driven tax scams.

WeBull – Strengthening security in digital trading

WeBull, a commission-free trading platform, faced increasing risks of fraud as it expanded its user base. With a commitment to providing a secure and seamless experience for its customers, WeBull partnered with Veriff to enhance its identity verification processes.

WeBull's integration of Veriff's AI-driven solutions helped safeguard against fraudulent account creation and identity theft, challenges that are also prevalent in tax rebate scams. This demonstrates the importance of leveraging advanced verification technology to prevent fraud in financial transactions.

Results:

• Streamlined onboarding processes.
• Reduced fraud risk through AI-powered verification.
• Increased customer trust and security.

FAQs: Tax rebate scams

1. What are tax rebate scams?

Fraudsters impersonate tax authorities to deceive individuals into sharing sensitive information or making payments for fake refunds. They may also file a fraudulent tax return using stolen personal information, such as Social Security numbers, to claim a fake refund. This can lead to substantial financial loss for the victims and complicate their legitimate tax filing processes when they discover that a fraudulent return has already been submitted in their name.

2. How can businesses protect themselves?

Adopt AI-driven fraud detection systems, educate stakeholders, and comply with regulatory guidelines.

3. What role does technology play?

AI and biometric verification enable real-time detection and prevention of fraudulent activities.