What is Identity Theft?
Identity theft occurs when someone wrongfully obtains and uses another person’s personal information, such as their name, Social Security number, credit card accounts, or other confidential data, and uses it to commit financial fraud or engage in other criminal activities while impersonating the victim.
Tax-related identity theft scams are fraudulent activities that use stolen personal information to file tax returns, claim refunds, or commit other financial crimes. In 2023, the IRS identified over 1 million tax returns as potentially fraudulent, with associated refunds worth $6.3 billion.
The consequences of identity theft can be severe, leading to financial loss, damage to credit scores, and significant challenges in resolving the fraudulent activities. Tax-related scams can cause delays in legitimate refunds, additional taxes or penalties, and exposure to identity theft risks in other areas.
How Do Identity Thieves Get Your Information?
Identity thieves can obtain your personal information from various sources, such as phishing emails, fake websites, data breaches, malware, or social media. They may also use social engineering techniques, such as impersonating IRS agents, tax preparers, or financial institutions, to trick you into revealing your information or clicking on malicious links. Here are some of the top tax-related identity theft threats, and practical tips on safeguarding your identity.
Phishing Emails: Recognizing and Avoiding the Bait
Phishing emails remain a prevalent tool for identity thieves. These messages often appear as official IRS communications, requesting personal or financial information. The IRS doesn’t initiate contact with taxpayers by email, text messages, or social media channels to request personal or financial information. Be wary of unsolicited emails in general and avoid clicking on any links or providing sensitive information.
Fake IRS Communications: Sorting Fact from Fiction
Scammers are known to make phone calls, send convincing letters, faxes, or even text messages impersonating the IRS. They often demand immediate payment or personal information using fear as a motivator. The IRS primarily uses traditional mail services as the first point of contact. They don’t:
- Call to demand immediate payment using prepaid debit cards, gift cards, or wire transfers.
- Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
- Demand payment without allowing you to question or appeal.
- Ask for credit or debit card numbers over the phone.
If you receive any suspicious communication claiming to be from the IRS, verify it by contacting the IRS directly using the official contact information provided on their website or publications.
Fraudulent Tax Returns: Monitoring for Suspicious Activity
Identity thieves use stolen information to file fraudulent tax returns and claim refunds. Regularly monitor your financial accounts for any unusual activity, especially during tax season. Signs you might be a victim include:
- You get a letter or inquiry from the IRS about a tax return that you did not file.
- You can’t e-file your tax return because of a duplicate Social Security number.
- You get an IRS notice that an online account has been created in your name or that your existing online account has been accessed.
- You get an IRS notice about additional tax or a refund for a year you did not file a tax return.
- IRS records indicate you received income from an employer you didn’t work for.
- You’ve been assigned an Employer Identification Number that you did not request.
Tax Preparer Fraud: Choosing Wisely for Security
Selecting a reputable tax preparer is crucial for safeguarding your personal information. Some unscrupulous preparers may misuse your data for identity theft or to engage in fraudulent activities. Research the credentials and reputation of tax preparers before entrusting them with your information. Verify your preparer is an IRS-certified professional or hire a well-established CPA firm.
Delayed Refund Scams: Recognizing Unrealistic Promises
Some scammers may promise faster or larger tax refunds in exchange for personal information. Be wary of offers that seem too good to be true. The IRS has established processes for issuing refunds, and any deviation from these standard procedures should raise suspicions.
Inadequate Online Security: Protecting Your Secure Communications
Ensure the use of secure communication channels when sharing your personal information with any of your financial advisors or utilizing their online platforms. Your tax preparer should offer a secure portal or other means to protect the transmission of sensitive information. Don’t send private or financial information via email unless security measures are in place to safeguard the data during transit. Whenever possible, steer clear of public Wi-Fi or take steps to fortify your communications using other methods to ensure its security.
How Can You Protect Yourself from Tax-Related Identity Theft Scams?
Being vigilant against phishing attempts, monitoring financial accounts and staying informed are crucial steps to mitigate your risk of identity theft. The IRS advises taxpayers to also take the following steps to protect themselves from tax-related scams:
- File your tax return as early as possible before a scammer can file one using your information.
- Protect your personal and financial information by using strong passwords, encryption, and antivirus software.
- Monitor your credit reports, bank accounts, and tax transcripts for any suspicious activity.
- Respond promptly to any IRS notices or letters.
- Get an Identity Protection PIN. The IP PIN is a 6-digit PIN that offers additional protection for your Social Security number on your tax return.
What Should You Do if You Become a Victim of Identity Theft?
If you suspect that you may be a victim of identity theft, prompt reporting and appropriate actions, such as notifying law enforcement and relevant financial institutions, are essential to minimize the impact. You should:
- Report the identity theft to the Federal Trade Commission (FTC) at IdentityTheft.gov or by calling 1-877-438-4338.
- Contact the Three Major Credit Reporting Agencies and ask them to place fraud alerts and a credit freeze on your accounts.
- Contact the Fraud Departments at your financial institutions. This includes your credit card issuers, banks, and other financial institutions.
- Report any tax-related suspicious emails or phone calls to phishing@irs.gov
- Complete IRS Form 14039, Identity Theft Affidavit, if your e-file return is rejected because of a duplicate filing using your Social Security number. Continue to pay your taxes and file your tax return, even if it must be by paper. Attach the identity theft form to your paper return.
- Respond immediately to any IRS notice.
While it’s always crucial to be vigilant against identity theft, it is especially so during tax season when scams related to tax identity theft are at their peak. By understanding the methods employed by identity thieves and implementing these practical strategies, you can help mitigate the risk of falling victim. Protecting your personal information is a critical first step in reducing this risk and is a proactive step towards a secure and less stressful tax season.
To get information about the latest tax-related identity theft scams, visit https://www.irs.gov/newsroom/tax-scamsconsumer-alerts