Reduce the risk of tax ID fraud with a few simple, proactive steps
With the 2022 tax filing season officially open as of Jan. 23, it’s an opportune time to take some basic security measures to avoid becoming a victim of tax identity fraud.
Tax ID fraud is one of many types of general tax scams, which keeps government enforcement agencies very busy. Late-last year, the IRS’s Criminal Investigation division announced it identified $5.7 billion in tax fraud for fiscal year 2022, versus $2.3 billion from two years earlier.
Tax ID fraud occurs when a perpetrator uses the Social Security number (SSN) and other personally identifiable information (PII) of an individual to file a fraudulent tax return and claim a refund. Other PII could include key items such as W-2 tax forms, addresses, and date of birth. The criminals will attempt to file a refund early in the filing season before the real taxpayer files their own return.
What Criminals Are Doing
Criminals resort to different methods to illegally obtain PII and perpetrate the tax fraud. Once they obtain PII, it’s off to the races. In one case, a man was convicted for filing more than 30 fraudulent income tax returns in the names of 12 different trusts, according to the IRS Criminal Investigation’s report✎ EditSign for the fiscal year 2022 (ended Sept. 2022). In another scam, a computer consultant wrote a program to store stolen identities and automatically file tax returns, with refunds deposited onto prepaid debit cards. Another perpetrator was sentenced for stealing the PII of 65,000 employees of the University of Pittsburgh Medical Center, then selling the data on the dark web to conspirators, who promptly filed hundreds of false 1040 forms in 2014.
Often, victims of such scams find out only after their taxes have been filed either by themselves or a hired preparer, only to receive a letter of rejection from the IRS due to multiple filings. This happens year after year, notes Kathryn Albright, Global Payments and Deposits Executive with Umpqua Bank, a Portland, Ore.-based institution with $32 billion in assets.
“Criminals unfortunately will aggressively prey on sensitive information they can use to perpetrate identity theft, and filing early tax returns at this time of year is one ruse they keep coming back to,” Albright notes. “Consumers, businesses, trusts, non-profits – basically anybody who has to file – could end up being a victim.”
Tips to Avoid Tax ID Fraud
Here are some ways you can help protect yourself from tax ID fraud for this and future tax seasons:
- File your taxes as early as possible. Many reporting schedules such as 1099s won’t be made available until mid-February, but you should receive them well ahead of this year’s April 18 federal filing deadline. Speed can be critical to securing your tax filings—and identity. If you beat fraudsters to filing your own taxes, they likely won’t control where your refund goes.
- Consider using an Identity Theft (IP) PIN. The code is a six-digit number that prevents someone else from filing a tax return using your SSN or tax-ID number. These PINs used to be assigned to victims of identity theft to help them confirm their identity, but now everyone is eligible. You first must pass an identity verification process. The PIN is valid for one calendar year, with a new one generated each January. More information is here.
- Research potential tax preparers before providing them with sensitive personal information. If you elect to have somebody else do your taxes, be sure they’re a qualified, trusted, and reputable preparer. Use the IRS’s searchable directory to help you find a qualified tax professional if necessary.
- Watch for schemes to take your SSN. There are numerous scams aimed at stealing SSNs (and other sensitive personal information). Don’t provide such information to unfamiliar contacts—especially if you’re unexpectedly asked to do so by a stranger via email, text message, or even on social media. The IRS doesn’t use those methods to contact individuals.
- Use secure, trusted devices when filing your taxes online. When collecting your tax documents and then filing online, be sure you’re using as secure a computer as possible. That includes running the most updated versions of security software, internet browsers, and operating systems, and that your computer is connected to a trusted, safe internet connection. (For example, if possible, consider using a personal laptop connected to your home Wi-Fi network rather than a shared computer with a public internet connection.)
- Place a security freeze on your credit reports. Freezing your credit reports with the top three credit bureaus (Equifax, Experian, and TransUnion) could help prevent further damages if a fraudster does steal your identity. When you place a freeze, you’ll set up an account with each of the agencies. Store the passwords to each of the sites in a safe place. You can always temporarily unfreeze your report in order to get any credit needs approved.
“Start preparing your taxes as soon as possible so that when you do have all of the documents, you’ll be ready to file much earlier than the April deadline,” Albright says. “Use checklists to help keep track of all of the incoming documents. Throughout the tax season, keep an extra watchful eye on your credit reports and bank account details to make sure there’s no unexpected or unusual activity that could be linked to fraud. It’s a little bit of extra work that will help you feel more secure, and less stressed.”
What to Do if You Become a Victim
If you make the unfortunate discovery that somebody stole your identity to file your taxes, consider performing the following actions as soon as possible:
- Contact the IRS and complete form 14039 (Identity Theft Affidavit)✎ EditSign✎ EditSign or call (800) 908-4490 for specialized assistance.
- Follow the instructions that you receive in any letter from the IRS alerting you of a potential stolen tax identity theft situation. Then, report the situation to both the IRS and the Federal Trade Commission (FTC) at identitytheft.gov to initiate a recovery plan.
- Secure your IP PIN and any other details you receive from the IRS and other federal agencies/law enforcement to prevent future identity theft.
- Place a fraud alert on your credit reports—and consider freezing them altogether if you haven’t already done so.
For more information about preventing tax fraud, visit these additional FTC and IRS resources.