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Criminals masquerading as Internal Revenue Service agents have bilked more than $1 million from thousands of taxpayers in the largest such phone scam the IRS has seen, the agency's watchdog said Thursday.

J. Russell George, Treasury inspector general for tax administration, said more than 20,000 taxpayers have been targeted by bogus tax agents who claim victims owe taxes and demand they pay with a prepaid debit card or by wire transfer.

The thieves tell victims they could be arrested, deported or lose their business or driver's license if they refuse, George said in a news release, the latest in the agency's year-long awareness campaign.

Taxpayers who owe are generally contacted first by mail, and bona fide IRS agents never insist on payment by debit card or wire transfer, and they don't ask for credit card numbers over the phone.

The agency began warning last March of a "dirty dozen" tax scams, including the one involving fake agents calling taxpayers. Complaints, mostly from immigrants, began coming into the inspector general's hotline in August and has expanded since then. Residents of nearly every state were targeted, George said.

STORY: IRS releases 'Dirty Dozen' tax scams for 2014

On Halloween, acting IRS Commissioner Danny Werfel warned of a "pervasive telephone scam."

"If someone unexpectedly calls claiming to be from the IRS and threatens police arrest, deportation or license revocation if you don't pay immediately, that is a sign that it really isn't the IRS calling," Werfel said in the news release.

Another warning came a week later.

The thieves spoof caller ID to appear to be calling from the IRS, and often know the last four digits of a target's Social Security number, he said. They also use common names, fake badge numbers and follow up with official-looking e-mails.

"This is the largest scam of its kind that we have ever seen," George said. "The increasing number of people receiving these unsolicited calls from individuals who fraudulently claim to represent the IRS is alarming."

The IG's office is working with major phone carriers to try to track the origins of the calls, which investigators believe are connected.

The agency has information about tax scams and how to report them.

Contributing: The Associated Press

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