Tax Identity Theft is when someone uses your social security number to file a tax return in your name. The thief simply makes up income and other data and submits a fraudulent tax form to the IRS in an attempt to obtain a tax refund. During just the first nine months of 2016 the IRS reported that it was able to stop 787,000 fraudulent tax returns totaling a staggering $4 Billion. Despite the IRS’s efforts to combat this type of fraud, it still paid out over $239 Million in fraudulent tax return refunds.
What is Tax Identity Theft?
Don’t think you need to worry? Think again! The recent Equifax hack exposed up to 143 Million people to potential tax identity theft when personal information including social security numbers were stolen in one of the largest thefts of personal data in U.S. history.
Every year the IRS publishes a list of the most common tax scams called “The IRS’s Dirty Dozen”. Some of the most common scams are:
- IRS Impersonation Telephone Scams – In this scam, callers claim to be IRS agents and tell victims they owe money to the IRS and unless it is paid immediately by gift card or wire transfer, victims may face arrest, deportation or suspension of a business or driver’s license. Some victims are told they have a refund due in an effort to obtain personal information. Scammers often use technology that spoofs the caller-id number to make it look like the call is from the IRS.
- Soliciting W2 Information from HR & Payroll Departments – In this scenario, scammers contact HR or Payroll employees by email or telephone and pose as an executive of the same company in an effort to obtain employee data.
- Email, Phishing & Malware Schemes – Phishing involves the scammer sending emails or text messages designed to mimic official IRS or tax software company correspondence in an attempt to trick the victim into providing personal information. Emails usually contain links to bogus IRS websites that instruct the victim to update their e-file tax return. When the victim clicks on this link, malware is often installed on the victims computer that logs keystrokes with the goal of capturing login credentials to bank accounts.
The IRS will never contact you by phone, text message or email. Instead, the IRS will only contact you by mail. If you receive a suspicious email, the IRS advises you not to click on any links and forward the email to email@example.com.
eFiling Best Practices
When filing your taxes using an eFile website there are several things you can do to protect your information. The first thing is to verify that the site you plan on using is encrypted. Websites that are secure will have a secure lock symbol or display green in the browser bar. Also, by filing as soon as possible you can limit the chances that a criminal will file a fake tax return in your name. Using public wifi to transmit your tax return is asking for trouble. Instead, use a secure internet connection at home from your own personal computer running the latest security and malware software to ensure your personal information is protected.
Warning Signs of Tax ID Theft:
The IRS sends out notifications to taxpayers for many reasons. The notification typically is in regards to an issue about your account or tax return. If you receive a notification about a change to your tax return review it carefully against your tax return and contact the IRS immediately as this could indicate someone has illegally modified your tax return in an effort to obtain a fraudulent refund.
Credit report discrepancies
Checking your credit report at least once a year for errors is sound financial practice and it can alert you to possible fraudulent accounts. You are entitled to one free credit report from each of the three major credit reporting companies every 12 months. Order online from the only U.S. Government FTC authorized site for free credit reports annualcreditreport.com .
Best Practices to Avoid Tax Identity Theft
- Update your computer – Keeping your computer’s antivirus malware software updated is key to protecting your personal information from would be hackers intent on stealing your identity. Antivirus software companies are constantly updating their software to defend against the latest viruses and setting your computer’s antivirus software to update automatically is the best way to protect your personal data from being hacked.
- Protect your network – Your first line of defense against someone determined to steal your personal information is your network router. There are several things you can do to secure your wifi network: change default admin password, change default SSID and create a strong password, use MAC address filtering to prevent unauthorized devices off your network, disable WPS, turn on HTTPS access to router interface, create WPA2 guest login credentials, and finally enable WPA2 security protocol.
- File early – Filing your tax return early reduces the chances someone can submit a fraudulent tax return with stolen personal information. Unfortunately, you won’t know if someone has filed a tax return in your name until you file your return. If you efile or paper file, you will receive notification from the IRS in the mail that a return has already been filed. If you believe a fraudulent return has been filed, you will need to complete IRS Form 14039 and mail to the IRS immediately.
- Dispute credit report discrepancies – Checking your credit reports yearly for any errors and correcting them promptly will not only protect your credit score it will allow you to identify any potential identify theft attempts so that you can repair .
And finally, consider researching identity theft protection services that can alert you to any fraudulent charges in real-time so that you can take corrective action immediately and avoid any further potential damage caused by theft of your personal information.
Being aware of the latest tax scams is critical to protecting your identity and financial data from those that can cause great damage. The IRS is predicting a substantial increase in tax related fraud this year due to the increased number of large-scale hacks targeting social security numbers and other personal data.
One promising development in the fight to reduce tax fraud is the use of personal identification numbers or PIN. The IRS is test piloting the use of personal identification numbers in an effort to drastically cut down on tax identity theft. If you filed a tax return last year in Florida, Georgia, or the District of Colombia, or have been a victim of tax-related identity theft, you may be eligible to obtain an IP PIN from the IRS. An IP PIN is a six-digit number assigned to taxpayers to reduce the chances of a fraudulent tax return being submitted in your name. Since you must file your tax return with an IP PIN if you were assigned one, it allows the IRS to validate the you are the owner of the social security number provided on your tax return.
For additional reading on identify theft see College Students as Victims of Identity Theft.