Avoid Tax Refund Fraud

10 Steps to Avoid Tax Refund Fraud

Last updated on April 4, 2019 Comments: 5
Are you anxiously awaiting your tax refund from the IRS? No doubt you filled it in properly, maybe even had your accountant look at it, and now you’re expecting a hefty tax rebate from the Federal Government. Now imagine it never comes. Instead, you receive a harshly worded letter from the IRS, informing you that a separate tax return was already filed under your name.

This was the case for thousands of Americans last year. Tax return frauds are a growing epidemic, and the IRS is powerless to stop it. To avoid becoming a victim, you must follow these tips for fraud protection and recognize potential credit fraud.

Every April, US citizens must file several forms with the IRS. These forms determine how much income tax you should be paying. If you paid more than you owe in the previous tax year, the IRS will send you a tax refund. The refund is paid directly into your account, or you’ll receive a check in the mail. But that’s not always the case. There are less-than-honest people out there who will steal your identity and fraudulently file a tax return using your name. The tax return is sent to the thief’s bank account rather than yours. It is known as tax return fraud.

Tax return frauds are far too easy to pull off. If a would-be thief is wondering how to commit tax fraud, they could learn all the necessary steps in minutes. All you need is somebody’s Social Security number, date of birth, and full name – hardly difficult things to obtain. Since forging tax returns is so easy, it’s becoming one of the leading scams in the US.

And thanks to paperless e-filing, identity theft tax return fraud is now even easier than before. All a cyber thief needs to do is make up wages and phony income figures, then submit the files online. Of course, the IRS keeps tabs on our wages and income streams, but tax refund claims, especially smaller ones, often fall through the cracks.

You would think that advances in cyber security would help prevent tax fraud, but the opposite is true. In 2014, the IRS reported that approximately $6.5 billion dollars had been stolen. In 2016, that number grew to a shocking $21 billion. According to a LexisNexis whitepaper, tax return fraud grew by 3,700% in 2015 alone. The IRS is working on ways to combat this growing menace. Yet there are still many vulnerabilities in their fraud detection systems which thieves are taking advantage of.

How Can Fraud be Prevented?

So now that you know exactly what is tax fraud, you need to know how can fraud be prevented.

In 2013, the IRS ranked tax return frauds as the number one scam of the year. Alarmingly, this scam has worsened since then, and it’s vital to understand how can fraud be prevented. It’s clear that you cannot rely on the IRS to fix this problem for you. If you don’t want to be a victim, you must be proactive and follow these tips for fraud protection and recognizing potential credit fraud:

Tip #1: File Early

This is the simplest of fraud tips we can suggest. The IRS will reject any duplicate tax return with your Social Security number. Thieves try to send fraudulent tax returns well in advance of the due date, which means your genuine return will be rejected. By filing early you can pre-empt any potential thieves from stealing your tax refund.

Tip #2: Don’t get Phished

So what is IRS fraud? Fraudsters try to make fake returns look as genuine as possible. To do this, they often send phishing emails to unsuspecting victims. They design these emails to look like official IRS emails, asking for income information. Or, you may get a phone call from somebody claiming to be an IRS agent requesting information.

Don’t fall for it! The IRS never contacts people via email, and they won’t phone you out of the blue. Stay vigilant, especially during tax return season, and report any suspicious activity to the IRS.

Tip #3: Protect Your Social Security Number

Protect your SSN like you do with your credit card details. Many people are far too lax when it comes to this and they freely share their SSN with people. These people don’t understand how to commit tax fraud, and just how easy it is.

Tip #4: Use a PIN

The IRS recently launched a new initiative to combat tax fraud. Under the new initiative, you can apply for a personal identification number (PIN) which will protect your identity online. Keep the PIN safe and don’t share it with anyone. Currently, PINs are only available for taxpayers in certain states. Check online to see if you are eligible.

Tip #5: Secure your Network

This is a vital fraud tip: cyber thieves and hackers try to infiltrate computer networks to install malicious viruses. These viruses can steal sensitive files, personal details, and income reports, which may be stored on your device. Never send any confidential information over a public Wi-Fi network, and don’t download any suspicious programs.

Tip #6:  Only use a Recognized Tax Preparer

Most US taxpayers use a tax preparation service to help file their tax returns. If you’re one of them, make sure to use a reputable service and don’t just go with the cheapest option. There are many shady prepares out there who will steal your information to commit tax return fraud. Find a service which is licensed and has a good reputation. Also, try to find a service that knows what is IRS fraud and can help to protect you against it.

Tip #7: Shred all Bank Documents

Shred all your bank statements and reports before throwing them in the trash. Fraudsters may search your garbage for any bank documents which they can use to commit fraud.

Tip #8: Don’t Leave a Paper Trail

Thieves may try to intercept your mail before it arrives. Tell your bank to send all documents and statements electronically.

Tip #9: Don’t Discuss Your Tax Return Online

In the age of social media, far too many secrets are shared publically. Don’t discuss your tax return on Facebook or Twitter, and definitely don’t announce that you haven’t yet filed. If you have questions about your tax return, ask someone using an encrypted messaging service instead of an open forum.

Tip #10: Report Problems

If you’re sent a letter from the IRS which says your tax return was already filed, report it immediately. The IRS has instructions for reporting tax fraud, as do the police and other credit bureaus. It may take some time to resolve the case, but you should eventually receive your tax refund.

Don’t be a Victim!

File early, use a reliable tax preparer and keep your financial information private. Tax return fraud is one of the biggest threats facing US taxpayers, don’t become another victim. Follow our tips for fraud protection and recognizing potential credit fraud, and you will be safe this year.


Suggested Readings:

Best Identity Theft Services
What to Do If Your Identity Card is Stolen?

Article comments

Owen says:

Fed up of getting these emails all the time, very nearly got caught out by a particularly good one a few weeks ago.

Adam says:

Careful with #7. You really should keep all your tax records for at least 5 years from when you file in case of an audit. Most banks will not go back more than 18 months, so if you shred your documents after filing, you could be setting yourself up for a headache in the future.

Holly says:

how has $21 billion been stolen in one year and I didn’t even know this was a thing. Why don’t they teach us stuff like this at school? Time to by me a paper shredder!! Thanks for sharing 🙂

Emma says:

It’s scary that some of the most helpful tips in this article are so simple like “file early,” and some tips warn against things I’ve done for years, like saving a paper trail. I wish there were a way for the government to take more initiative regarding tax fraud. You’d think that in this day in age there would be a way to verify the identity of the first person who files a return that would deter scammers.

Scott G. says:

Omg this article hits so close to home. Last year when I thought I was going to be getting a refund I ended up having to deal with a SCAMMER. Really made me angry and was such a headache. Just gotta add here that if this happens to you make sure you deal with it quickly. I waited just a few weeks because I figured I had a return coming anyway so what the hell and it was a big mistake. Be on top of this or you’ll be making lawyers and accountants a lot of money.