Last February, the IRS issued a warning to all employers regarding the resurgence of a W-2 based cyber scam. The scam, which targets businesses during tax season, was also “spreading to other sectors, including school districts, tribal organizations and nonprofits.” In August 2017, the IRS renewed its warning to tax professionals and businesses as part of its “Don’t Take the Bait” campaign. In October, the IRS reminded the public about its procedures for reporting successful or failed attempts. With the tax season quickly approaching, it’s worth re-visiting how an employer can fall prey to this scam, describing how they can avoid it, suggesting they have a response plan in case they are a victim.
The cyber-scam consists of an e-mail sent to an HR or Accounting department employee, presumably from an executive or “higher-up” within the organization. Both the TO and FROM e-mail addresses are legitimate internal addresses, as are the “sender” and recipient names. The fake e-mail asks the employee to forward the company’s W-2 forms, or related tax data, to the “sender.” This request aligns with the job responsibilities of both the employee and the supposed internal “sender.”
Despite its appearance, the e-mail is a fake. The scammer is “spoofing” the company executive’s identity. In other words, the cyber-criminal is assuming the executive’s identity and e-mail address for the purpose of sending what appears to be a legitimate request for sensitive company information. The unsuspecting employee relies on the accuracy of the sender e-mail address, coupled with the sender’s job title and role, and forwards the confidential W-2 information. The information goes to a hidden e-mail address controlled by the cyber-criminal.
If successful, the cyber-criminal obtains a trove of sensitive employee data that can include names, dates of birth, addresses, salary information, social security numbers, and well as employer information needed for tax filings. The information is used to file fake individual tax returns (Form 1040) which generate fraudulent tax refunds or it is sold on the dark web to identity thieves.
This cyber-scam is form of ‘spear phishing’ known as business email compromise (BEC) attacks, or CEO spoofing. Spear phishing attacks target a specific victim by using personal or organizational information to earn the victim’s trust. The cyber-criminal uses information such as personal and work e-mail addresses, job titles and responsibilities, names of friends and colleagues, personal interests, etc. to lure the victim into providing sensitive or confidential information. Quite often, the scammer culls this information from social media, LinkedIn, and corporate websites. The method is both convincing and highly successful.
While an organization can use firewalls, web filters, malware scans or other security software to hinder spear phishing, experts agree the best defense is employee awareness. This includes ongoing security awareness training (see our white paper with best practices for setting up a training program) for all levels of employees, simulated phishing exercises, internal procedures for verifying transfers of sensitive information, and reduced posting of personal information on-line.
A W-2 e-mail phishing scam can have a devastating impact on a business and its employees. With tax season around the corner, expect to see more creative attempts to bait your personnel.
In the event your business is a victim of such an attack, it needs to be prepared to respond. This may require steps such as (i) being prepared to investigate the nature and scope of the attack, (ii) ensuring that the attackers are not still present in its systems, (iii) determining whether notification is required under applicable state law to individuals and state agencies, (iv) reporting to the IRS at email@example.com and the Internet Crime Complaint Center of the FBI, and (v) helping employees who may have questions about rectifying their tax returns.
Before Forms W-2 have to be generated (generally on or before January 31, 2018), business should be creating awareness in their organizations about these scams to avoid them from happening, but also making sure they are prepared to respond in the event a scam is successful.