Fraud Protection & Compliance
This year the Internal Revenue Service (IRS) will start accepting 2020 tax returns on February 12, about two weeks later than usual. That’s positive news—because you definitely want to file your tax return as soon as possible, particularly if you’re claiming a refund. Why is that important? Filing early will reduce the chances that a financial criminal will use stolen personal information (your name and Social Security Number [SSN] or Tax Identification Number [TIN]) to file a fraudulent tax return first, snatching, literally, a refund out of your hands. Continue reading to learn more and find out five ways to protect yourself from tax refund fraud.
How do fraudsters commit tax refund fraud?
The American Bankers Association (ABA) describes tax refund fraud as “involv[ing] identity theft, fraudulent W-2 forms and the on-line filing of a fraudulent tax return for the purpose of receiving a tax refund for deposit into the account of the fraudster or a money mule acting on behalf of the fraudster.” A variation of this fraud involves the fraudster using a tax preparation firm, obtaining a refund anticipation loan, with the proceeds credited to a prepaid card.
How do you find out if you are a victim of tax refund fraud?
How do you know if you’ve been defrauded? You don’t—until after the fact. The ABA further explains that many victims are unaware until they try to file their own taxes and learn that:
- “More than one tax return was filed,
- They have a balance due, refund offset or have had collection actions taken against them for years in which they did not file a tax return, or
- IRS records indicate they received wages from an employer unknown to them.”
How to protect yourself from tax refund fraud
With crimes like tax refund fraud, prevention is the best approach. Here are five simple steps you can take.
- File early. Again, the best way to prevent tax refund fraud is to stop it before it starts by filing your legitimate return as early as possible during tax season.
- Monitor your credit. Use a comprehensive credit monitoring service like myFICO.com to not only keep track of your credit score, but to receive alerts of new credit inquiries and any sales of your personal data on the criminal sites that have proliferated on the Dark Web. You can take steps to prevent this, too.
- Don’t share your Social Security Number. Fraudsters often try to pressure victims into sharing their SSN with fake “urgent” calls from the IRS. The IRS will never call you for routine correspondence—they always communicate through the US Mail. If you do receive a notice in the mail, before answering it visit IDVerify.irs.gov. Furthermore, ignore emails purporting to be from the IRS or credit card companies asking for your SSN.
- Shred hardcopies of documents containing your SSN. You may have paper copies of old tax returns and other financial records. As part of a comprehensive anti-fraud “hygiene” program, scan these documents, upload them to a secure cloud storage service and shred the hardcopies.
- Keep your SSN safe. I memorized my SSN as a young teen, and I recommend this to anyone. Keep your physical Social Security Card in a secure place, ideally, a safe deposit box. Don’t store your SSN on your phone, either.
What to do if your tax return is compromised
In a worst-case scenario, if you do find out that you’ve been a victim of tax return fraud, the experts at TurboTax advise the following steps:
- Fill out IRS Form 14039, Identity Theft Affidavit and attach it to your tax return.
- File tax returns and pay your taxes even as the fraud is being resolved.
- File a complaint with the Federal Trade Commission at identitytheft.gov.
- Place a fraud alert on your credit records by phoning one of the three principal credit agencies.
You can report identity theft on most credit monitoring apps, as well. By following my five tips for tax refund fraud prevention, hopefully you won’t have to.
For additional seasonal, and timeless, fraud protection strategies and steps you can take, follow me on Twitter @LizFightsFraud.
