Tax-related identity theft happens when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. Often it’s the taxpayers themselves who first realize something is wrong. You can begin to protect yourself by learning how it happens and how to recognize the warning signs.
How Tax Fraud Happens
Personal and financial information may be obtained from sources outside the IRS, such as social media or bogus phishing emails that appear to come from the IRS or a bank. The thieves then use this information to file fraudulent federal and state income tax returns, claiming significant refunds.
Criminals are becoming more sophisticated and their ploys more complex. It’s important to remember that the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. If you receive this type of communication, it is more than likely a scam.
Recognize the Warning Signs.
Taxpayers are the first line of defense against these scams. The IRS lists the following warning signs of tax-related identity theft:
Electronic tax return rejected.
When the IRS rejects your tax return, it could mean that someone else has filed a fraudulent return using your Social Security number. Before jumping to conclusions, first check that the information entered on the tax return is correct.
Must verify tax information.
The IRS holds suspicious tax returns and then sends letters to those taxpayers, asking them to verify certain information. This is especially likely to happen if you claim the Earned Income tax credit or the Additional Child tax credit, both of which have been targeted in refund frauds in previous tax years.
Receive W-2 from unknown employer.
Watch out if you receive income information, such as a W-2 or 1099 form, from an employer for whom you did not work.
Receive unsolicited tax refund or transcript.
Identity thieves may test the validity of stolen personal information by sending paper refunds to your address, direct depositing refunds to your bank or requesting a transcript from the IRS.
Receive mysterious prepaid debit card.
Identity thieves sometimes use your name and address to create an account for a reloadable prepaid debit card that they later use to collect a fraudulent electronic refund.
If you suspect foul play, contact your tax preparer immediately. He or she can help determine whether you’re a victim of tax-related identity theft and provide steps to remedy the situation.
