One day last week, a man went to get his mail from the curbside mailbox. Walking back to his house, he noticed an envelope from the IRS. He was surprised, because he expected the refund process to take a lot longer. Opening the envelope, he saw a paper refund check in an amount he never expected to see, as it was for an amount a lot higher than his filing. Excited, he called his wife to tell her the good news. Except – it really wasn’t good news. The man had been the victim of tax fraud.
When you receive a paper check for a refund that doesn’t match with what you filed, it’s a fraud, plain and simple. The cybercrook who orchestrated this scam simply forgot to put the correct return address on the tax form – his own. Instead, it went to the address that belonged to the owner of the Social Security number on the tax refund form.
Types of Tax Fraud
Someone had stolen this man’s Social Security number, and created a phony tax return. Cybercrooks create phony W-2 forms, or phony 1099’s and file them with the stolen Social Security numbers in order to obtain an illegal tax refund.
Another type of tax fraud happens when someone uses a new tax preparer who asks the person to sign their return before it’s actually filled in, and unfortunately, many people do in fact sign those blank returns. Other tactics used by these crooked tax preparers are asking you to make your payment out to them instead of the IRS, or they don’t even ask you for your W-2s.
One of the biggest IRS tax frauds and scams revolves around phone calls, where the caller, pretending to be from the IRS, wants to verify your personal information, tells you that you owed money on a return from several years ago and if you don’t immediately wire the money they will have you arrested within 30 minutes. Sadly, many older Americans fall for this scam, resulting in losses totaling millions of dollars.
Red Flags of Tax Fraud
There are some classic red flag warnings that you’ve become a victim of tax fraud. One of the biggest ones is that you’re unable to file your return, because it’s already been filed. Unfortunately, you weren’t the one who filed it – the cybercrook did. And they’ve already cashed your refund check.
If you receive a notice from the IRS that you still haven’t paid your taxes, yet you know you have, you’re probably a victim. Another red flag is when the IRS notifies you that you’ve created an online account in your name, and you know that you didn’t create one. It’s a classic sign of attempted identity theft. Or perhaps the IRS notifies you that their records show an employer you know you didn’t work for has filed a W-2.
There are more red flags, but you get the idea. The cybercrooks and thieves are always looking for ways to steal your identity and use it to fraudulently file phony tax returns to steal your money.
How Can this Happen?
People lose their wallets every day, and unfortunately, many people still carry their Social Security card in their wallet. Another way this can happen is because cyberthieves have been hacking into tax preparation companies, stealing people’s identity. Another possibility is that you’ve been the victim of a data breach at some entity, and your information was compromised. Once that happens, it’s only a matter of time before someone buys that information on the dark web and attempts tax fraud.
Other cybercrooks get your information from people-search websites, like Truthfinder, US Search and Pipl. Many cybercrooks scour these sites because they contain volumes of personal information, up to and including Social Security numbers – the holy grail of cybercrooks. Once they have that, it’s almost guaranteed that they’ll commit tax fraud.
Preventing and Fixing Tax Fraud
Prevention is your best offense, so if you can stop it before it starts it’ll make your life a lot easier. If you have unauthorized information on people-search sites, you need to have it removed. There are over 100 of those sites, with each one having their own rules on removing information and opting out, so plan on spending a ton of time getting that information removed.
Ask the IRS for an Identity Protection PIN (IP PIN). It’s an added level of protection for your Social Security number. It’s an arduous process to secure one, but it’s worth the effort for the peace of mind it offers you.
Everyone tells you how to secure your identity online, but you need to take the same level of protection with your sensitive data that you keep in your home. Tax returns and records, employment documents, bank records – all need to be secured within the home in case a break-in occurs.
To fix the problem after it happens, contact the IRS. They have an Identity Theft Affidavit on their website that you can download and print, and send to the IRS. If you’re a victim, report it to the IRS and to the Federal Trade Commission. In addition, be sure to report it to one of the three major credit bureaus: Experian, TransUnion or Equifax. You only need to report it to one, and they’ll notify the other two.
Finally, always respond to IRS notices. They all have a number attached to the notice, and you should use it in all correspondence. By following the suggestions and measures outlined above, you’ll have a good chance of detecting and preventing tax fraud, and fixing it if it happens to you.