Protect Yourself from Tax Refund Fraud

For many people, knowing a tax refund is on the way can be a big relief. However, if you were a victim of identity theft, the wait to receive your refund could drag on for almost a year. Unfortunately, in 2017, the identities of 143 million people were exposed in the Equifax data breach, making tax identity theft awareness critical. That’s why it’s critical to understand how tax-related identity theft works, how to reduce chances of becoming a victim, and what to do if you become a victim.

How tax identity theft works

Tax-related identity theft has been a colossal issue for the Internal Revenue Service (IRS) and taxpayers for years. The FTC states an identity thief may use your Social Security number to get a tax refund or a job. Employment- and tax-related identity theft currently top consumer complaints.

According to an article in USA Today:

• Average time it’s taken for the IRS to resolve claims: 278 Days
• Average number of fraudulent returns filed per year is more than 2 million
• Amount paid to tax return fraudsters in 2013: $5.8 billion

These numbers are so high because for many years tax identity theft has been relatively easy. Criminals simply file a fraudulent tax return with a counterfeit W-2 form under the victim’s name and Social Security number (SSN), and then wait for a refund from the IRS.

If the IRS fails to identify the fraudulent return and sends a check to the fraudsters, then instead of a refund victims receive a notification that their return already has been filed.

A tax return could also be delayed if another person uses a stolen SSN for employment. For example, if an employer reports an impostor’s income under your SSN, then your return will be flagged for unreported wages. The good news this year is that the IRS is getting better and detecting and stopping fraudulent returns. The IRS and tax-industry officials launched an Information Sharing and Analysis Center in 2017 in order to provide early warnings about new and emerging identity theft and refund fraud schemes. The IRS also place a new verification code on some of the W-2 tax return forms that individuals used to file federal tax returns.

File your tax return early

The best thing you can do to reduce the chance of becoming a tax fraud victim is to submit your tax return as soon as possible. This reduces the chance that crooks will file ahead of you in your name.

It’s also important to be on the lookout for warning signs for tax-related identity theft, which include:

• A notification that your SSN was used to file more than one tax return.
• A notification about unreported wages.

Recovery steps for tax identity theft victims

If you are a victim of tax-related identity theft, it’s important to do the following:

• Contact the IRS at 800-908-4490 if you receive a notice stating their records show you were paid by an employer you don’t know or more than one tax return was filed using your SSN.
• Respond promptly to IRS correspondence regarding the fraud.
• Submit an Identity Theft Affidavit (Form 14039).
• Continue to file your tax return (use a paper form, if your electronic submission is rejected and attach the Identity Theft Affidavit).
• Place a fraud alert with at least one of the three major credit bureaus (Experian, Trans Union or Equifax).
• Consider freezing your credit with each of the three credit bureaus.
• Use your credit monitoring and identity protection services to keep an eye out for fraudulent accounts and other signs of fraud.
• Visit IdentityTheft.gov to report and recover from identity theft.