When it comes to filing income tax returns, there tend to be two different kinds of people: those who file as soon as they have all the information they need in order to get it over with quickly, and those who procrastinate and wait as long as possible to file.

If you’re usually a procrastinator, it might make sense this year to join the early-filers camp – for reasons more than just ticking off the tax box. Doing so could help you avoid becoming a victim of tax-related identity theft, also known as tax refund fraud.

What is Tax Refund Fraud?

Tax refund fraud involves criminals using stolen personal information (including Social Security numbers) to file forged tax returns and then pocket tax refunds themselves, leaving the legitimate tax payer on the hook. Last year, data breaches (such as the Equifax one) compromised millions of Social Security numbers, so the amount of fraud is likely to increase this year. And tax refund fraud tends to spike early in the tax-filing season because thieves need to act quickly before victims have filed legitimate returns.

Hundreds of thousands of taxpayers are victimized by tax refund fraud each year. Last year, the IRS started a new program in which they issue a special identity protection PIN (or IP PIN) to some taxpayers who have been victimized by tax refund fraud in the past. This six-digit code must be entered when a tax return is filed electronically. The IP PIN program is currently being piloted by the IRS and is available to taxpayers in select states.

Fraud Prevention Steps

Despite these efforts, the risk of tax refund fraud is still very real. One of the best ways to protect yourself is to file your federal income tax return as soon as you have all of the documents you need, instead of waiting until close to this year’s tax-filing deadline of April 17 since it reduces the window of opportunity for fraudsters to file a fake return in your place. Other fraud prevention steps include the following:

• Monitor your tax account. You can keep an eye on your federal income tax account via an online tool the IRS has created. By monitoring your account regularly during the tax-filing season, you can spot any suspicious activity and take action quickly to limit the damage. Furthermore, if you register for this service you will make it more difficult for fraudsters which often try to sign-up for your IRS online account themselves. Given they may already have personal information, they often use this to steal even more of your information from the IRS such as past returns.
• Monitor your financial accounts & credit. Put the odds on your side with frequent monitoring of your accounts and credit. Use the latest technologies for this such as Personal Capital’s financial dashboard or Credit Karma’s credit monitoring app. Pick something that is convenient so that you will be able stay on top of it.
• Keep healthy cybersecurity practices. This is especially critical if you file your tax return electronically yourself. Unsecure PCs are a prime source for the theft of sensitive personal information by data thieves. Key things you will want to make sure you cover are:
  • Diligently applying all the software updates (e.g. those pesky things you ignore because they force you to reboot!).
  • Utilize reputable anti-virus software that you purchased.
  • Adopt safe password practices, use a password manager tool to have unique passwords on all of your accounts. Keep your password manager safe.
• Don’t be fooled by phishing emails or phony phone calls. These are another way criminals steal personally identifiable information. If you receive any emails that look even remotely suspicious, don’t click on any links or open any attachments — just delete them. And if you get a phone call from a supposed IRS employee asking for personal information, just hang up. Some examples include (but aren’t limited to):
  • Fake employer W-2 requests – emails pretending to be HR or payroll requesting you send your W-2.
  • Fake employee W-2 requests – the opposite of the above, this targets HR or payroll teams and is a scam for which the IRS has issued repeated warnings.
  • Fake CPA requests – phishing requesting that you email sensitive tax documents, pretending to be your CPA or a relative’s.
  • Calls from “the IRS,” issuing a warrant for your arrest.
  • Mail theft – fraudsters go around open mailboxes and steal your letters in hopes of catching a W-2.
  • And more…

If You’re Victimized

If you have been victimized by this scam, you may receive a notice from the IRS that more than one tax return has been filed with your Social Security number. Or, the notice may state that you received compensation from an unknown employer.

In this case, you should contact the IRS Identity Protection Specialized Unit right away by calling 800-908-4490. Next, you will complete an Identity Theft Affidavit using Form 14309 and send this to the IRS, along with proof of your identity. Be sure to document all of your conversations and written correspondence with the IRS and keep copies of everything.

Additionally, you should also consider filing a local police report and putting a credit freeze (not a lock or alert!) on your credit file. Keep in mind that credit bureaus will usually have to provide this to you for free with a police report. The IRS emphasizes that you must still file your return and pay any taxes that are due on time, even if you’re a victim of tax refund fraud.

Our Take

If you are victimized by tax refund fraud, you may experience long delays in receiving a tax refund if you are due one. Furthermore, because tax fraud may result in a large portion of your confidential identification information, this can lead to further identity theft activities. So now is the time to take proactive steps to help prevent this type of fraud from happening to you.