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How to Avoid Tax Theft Scams

By: Stephanie Mintz, CFE Fraud Prevention & BSA Analyst

Posted on 3/3/2021 3:34:01 PM

Stressed couple reviewing their tax forms

Tax theft scams are more common than you think. Tax scammers are continually finding novel ways to steal your personal information as well as your money. Therefore, you need to know the signs that someone is trying to scam you and learn the necessary steps to stay protected.

Be aware of these tactics scammers use to get information about their victims and commit tax fraud.

Fraudulent Tax Preparers

Fraudulent tax preparers tend to set up shop around tax season. Often, they lure you in with promises of a big refund, but an unscrupulous preparer might even fabricate deductions, invent income to falsely claim tax credits, or even route your tax refunds to their personal bank accounts.

Odds are, you won't be able to differentiate a scammer from a legitimate tax professional just by checking their website. However, there are some warning signs to keep an eye out for. A tax preparer might be fraudulent if their fees are based on a percentage of your tax refund or mark your tax return as "self-prepared" when they file the return.

Phone Scams

Phone scams are the most pervasive of all the tax theft scamming tactics. Criminals posing as IRS agents make unsolicited calls with the intent of stealing your money or your personal information. They often use caller ID spoofing to make it look like the IRS is calling and tend to use threats in order to intimidate a victim.

Here's what you need to know. The IRS will never call you out of the blue demanding instant payment. They will first mail you a bill if you owe taxes, and you will always be allowed to appeal. Also, the IRS will never threaten you with arrest.

Tax-related Identity Theft

Tax-related identity theft is when a scammer uses your personal information to file returns and claim a bogus tax refund. You likely won't even realize you are a victim of this type of fraud until you attempt to file your taxes and the IRS rejects your return.

Scammers usually obtain your information using various phishing scams. Typically, scammers create fake emails and use fraudulent websites to access your personal information, which is why it's essential to stay vigilant and protect yourself year-round.

A couple comparing printed tax information to their digital tax records

How to Avoid Tax Fraud

You can help protect your sensitive information from falling into the wrong hands by taking the following steps.

File Early

Filing your returns as early as possible will prevent anyone else from being able to file in your name. Usually, tax scams spike during tax season and filing early means you've beat any scammers to the punch.

Be Diligent with Your Personal Information

Keep your Personally Identifiable Information (PII) safe and secure. Your PII includes your social security number (SSN), taxpayer ID, and even your birth certificate. Do not store this information online. Not even password-protected cloud systems are invulnerable to breaches. Consider getting a safety deposit box or keeping important documents safe at home in a fireproof safe or locked filing cabinet.

Man smiling on his computer reviewing his tax information

Update Your Cybersecurity

Think about it. How much personal data can be accessed through your online accounts? You must be vigilant and protect your information. Here are a few tips:

  • Protect your passwords. If you don't have a password manager, now's the time to get one.
  • Use virus and malware protection.
  • Always use a secure internet connection when accessing personal or financial records.

Use reputable tax professionals

Ensure that your tax preparer readily provides their IRS-issued Preparer Tax Identification Number (PTIN). You can confirm the legitimacy of their PTIN using the IRS' searchable directory of licensed professionals.

Know the Signs of Identity Theft

The key is to stay alert. If you notice the following signs, you may have fallen victim to tax-related identity theft.

  • You get notification from the IRS (via mail) about a suspicious tax return.
  • You can't file your return because of a duplicate SSN.
  • You get notified that your online IRS account has been accessed or disabled.
  • You notice that IRS records state you received income from unknown sources.

Take Action If You Believe You've Fallen Victim to Tax Fraud

Of course, the best way to deal with tax scams is to avoid them in the first place. Still, if you notice any of the signs of identity theft, contact the IRS and file a police report immediately. If you believe someone has fraudulently filed a return in your name, make sure to get a copy of the return. Report any theft to the Federal Trade Commission and consider filing a fraud alert.

Falling victim to tax fraud could rob you of not only your refund, but also, your peace of mind.

Final thoughts

Beyond taking steps to protect yourself against tax theft scams, it's advisable to remain relentlessly vigilant. Remember, while tax fraud season often starts towards the end of the previous tax year, it may extend past the April 15th tax deadline.