Tax season is just around the corner and as hundreds of millions of Americans prepare their returns, online scammers are on the prowl. Tax season is ripe with scammers looking to commit tax identity theft and tax fraud to steal refunds and taxpayer data. Tax-related identity theft is a growing problem and could happen to anyone. If you’ve ever asked the question, “What is tax identity theft, what is tax fraud, or how does tax identity theft occur?” you’ve come to the right place. Take the time to understand tax fraud, learn tax identity theft protection methods, and how to report tax fraud to the Internal Revenue Service (IRS) to avoid becoming a victim. This article will give you all you need to know.
What Is Tax Identity Theft? Tax Identity Theft Description
Tax identity theft describes the action of someone else using your Social Security Number (SSN) to file a tax return in your name. They will use that tax return to then claim a refund, thus committing tax fraud. Victims of tax identity theft or tax fraud often find out about it after it’s too late when the return they file gets rejected because someone has already filed in their name. Tax identity theft can lead to big problems with the IRS and can unfortunately take years to resolve.
How Can Tax Identity Theft Occur? Common Methods Used by Scammers
Now that you’ve learned the tax identity theft description, you might be wondering How can tax identity theft occur. Well, online scammers can use several different tactics to commit tax-related identity theft or tax fraud. Many of these tactics prey on unsuspecting victims by way of social engineering campaigns.
- Phishing: Tax identity theft thieves will sometimes impersonate the IRS or other tax professionals to get victims to share their details. They will use phishing emails, SMS messages, or phone calls as their method of communication. If you receive a message like this, watch out for urgent or threatening language that asks you to take action quickly.
- Data Breaches: Some cyber attackers will set their sights on organizations that keep large amounts of taxpayer data. These could be businesses with thousands of employees, universities, or even government agencies. Once they breach the system, they will steal SSNs, names, addresses, and contact information to commit tax identity theft.
- Fake CPAs: Scammers will sometimes pose as certified public accountants (CPA) or tax preparers and trick victims into hiring them for their services.
- Mail Theft: Criminals can intercept tax documents like W-2 forms that are sent in the mail to obtain personal information to commit tax-related identity theft and other illegal or fraudulent activities.
Is Tax Fraud a Felony? Tax Fraud Jail Time
How serious is tax fraud you might be wondering? Is tax fraud a felony? Will tax fraud jail time incur? The answer is yes, tax fraud is a felony and can come with major penalties. According to the USSC, the average jail time spent for tax fraud offenders is 16 months. In addition to tax fraud jail time, convicted criminals may also have to repay the amount of money stolen.
The Impact of Tax-Related Identity Theft and Tax Fraud
The effects of tax identity theft can be severe and fixing the situation can take a long time. As of April 2024, the IRS takes an average of 22 months to work through Identity Theft Victim Assistance (IDTVA) cases. Here are some impacts you might expect to see if you become a victim of tax-related identity theft.
- Refund Delays: If you become a victim of tax fraud or tax identity theft, you could face some significant delays in receiving your rightful refunds as they work to resolve the fraud with the IRS.
- Money Loss: Tax fraud criminals can use stolen information to withdraw funds from your accounts or open up new credit cards in your name. This can lead to a great deal of issues that can affect your credit score.
- Emotional Distress: Resolving identity theft cases can be very time-consuming and take a lot of work. It can be a frustrating process that can be emotionally draining.
IRS Scam Prevention
Protecting yourself starts with the ability to recognize red flags of a potential scam. Here are three IRS scam prevention tips to help you ward off potential threats that can damage your life.
- Unexpected IRS Messages: The IRS will never email, text, call, or DM you on social media. If you receive such messages, it is like a scam.
- Making Threats: The IRS will never use any sort of intimidating or threatening language in their communications. This is a sign of a scammer as they will try to coerce you into complying with their wants.
- Immediate Payment Requests: Demands for payment through such methods as prepaid cards or wire transfers are never done by the IRS and are common indicators of fraud.
How to Protect Yourself from Tax Identity Theft
Safeguard Your Personal Information
Protecting your sensitive personal information is the first line of defense against tax identity theft and securing taxpayer data. Always make sure to shred or cut up sensitive documents before you throw them away. This will help prevent dumpster diving by criminals. Always create strong passwords and store them securely in an encrypted password manager, like the one offered in the Mozo platform. Use two-factor authentication (2FA) on all of your accounts for an extra layer of security. Finally, never share personal information, passwords, or other sensitive details online. If you must, share them personally with someone over the phone or in person.
Secure Taxpayer Data with Secure Tax Preparation Methods
If you are filing your taxes on your own, always do it securely so you can reduce your chances of falling victim to tax identity theft. You can file your taxes electronically through trusted software such as TurboTax so you minimize your expose to threats. Try and avoid public Wi-Fi networks when accessing your tax records or filing new returns. Public Wi-Fi networks are often unsecured and can leave you open to privacy invasion or cyber-attacks. If you are on public Wi-Fi, use a VPN to encrypt your connection.
Monitor Your Accounts for Tax Identity Theft Protection
If you check your accounts regularly, you can detect fraud in an early stage and hopefully put an end to it before it’s too late. You should monitor your credit score with identity theft protection software like Mozo and check your credit reports with one of the three credit bureaus. Always go through your monthly financial statements and look for unexpected charges or suspicious activities. Finally, set up alerts with your financial providers to flag suspicious transactions as they occur in real-time.
Report Suspicious Activities Right Away
If you take quick and decisive action when you suspect ongoing fraud, it can make a world of difference. If you suspect anything, report tax fraud to the IRS as soon as possible. Go here to learn more about reporting tax fraud to the IRS. Next, contact the Federal Trade Commission (FTC) and report the fraud. You can also contact your local police department as they may have an open case on the scammer.
Securing Taxpayer Data: How the IRS and Others Do It
Over the past decade, the IRS and other organizations have implemented new measures to help protect taxpayers from tax identity theft:
- Identity Protection PIN: The IP Pin is a six-digit code that adds more security to your tax filing. It can be issued by the IRS and makes it harder for scammers to commit tax fraud by filing a return in your name or using your SSN.
- Verification: Tax software and IRS systems now use enhanced verification processes like multi-factor authentication to detect and prevent tax fraud and fraudulent tax returns.
- Public Awareness: The IRS regularly shares updates and facts to help increase awareness around tax fraud. You can visit the IRS Tax Security account on X to learn more.
Avoiding Tax Refund Fraud
It’s not only people who are targets of tax identity theft. Many businesses are targets for tax identity theft as well and avoiding tax refund fraud is crucial. Employers at large or small organizations must take proactive measures to properly protect their data and the data of their employees. Employers should train their staff on phishing tactics and how to properly secure data through encryption. Also, responding quickly and decisively when breaches do occur is very important. If a data breach occurs, the employer should notify all individuals and the relevant authorities as soon as possible.
What to Do If You’ve Become a Victim of Tax Identity Theft: Report Tax Fraud to The IRS
If you think or have become a victim of tax identity theft, follow these steps right away:
- Contact the IRS: Call the IRS Identity Protection Specialized Unit at 1-800-908-4490. Complete the form titled 14039 to formally report the theft.
- Notify Other Authorities: File a report with the FTC at IdentityTheft.gov. Also, contact your state tax agency to inform them of what happened.
- Monitor and Freeze Your Credit: Place a fraud alert or credit freeze on your file with the major credit bureaus. To monitor your score, use Mozo and its identity theft protection features.
- Prevent Future Incidents: Use an IP PIN for added security when filing taxes in the future.
Key Takeaways for Tax Identity Theft Protection
Tax identity theft and tax fraud are serious issues that can cause great financial and emotional issues. However, if you take a proactive approach and stay up to date on the latest dangers of tax scams, you can greatly reduce your risk. By looking for red flags, and utilizing tax identity theft protection services like identity theft protection software, you can better protect yourself from tax identity theft and ensure a smoother, safer tax filing experience. For more insights on protecting your data and avoiding scams, visit GetMozo.com and stay informed on the latest trends.
