Taxes are one of life’s two certainties. But we might add a third one: ploys during tax season used to steal your refund. Since the IRS has extended the 2019 tax filing date until July 15, 2020, in response to the financial fallout from COVID-19, we expect to see a significant uptick in the number of tax-related identity theft cases.
Here’s how we think the next wave of tax identity scams likely will go down: Most employees received their W-2 forms in January. Since many of us procrastinate and wait until the last minute, a scammer who has access to someone’s compromised Personally Identifiable Information (PII) — elements such as a Social Security number (SSN), birth date, full name, and street address — can take advantage of the January-to-July time interval to file a phony claim in that person’s name. Because the IRS generally tries to process refunds in as little as three weeks, the scammers receive their fraudulent refunds in the mail or electronically and convert it into untraceable cash.
In 2019, the U.S. Treasury Inspector General’s office confirmed 13,737 fraudulent tax returns involving identity theft and identified more than 3 million additional tax returns flagged for identity theft, preventing refunds totaling $14.7 billion from being issued.
With the filing extension, the tax cheats will have that much more time and opportunity to defraud unsuspecting (and likely highly distracted) taxpayers. The situation is even worse for people who don’t expect to receive a refund in the first place.
Anatomy of a Tax Identity Scam
Tax identity theft is especially difficult to detect before the fraud occurs. But here are the most common telltale signs:
- If your federal income tax return has already been filed by someone else using your PII, they may try to shortstop your refund. When you later file your return, the IRS will send you a notice letter indicating that your refund has already been issued.
- Sometimes, identity thieves who have stolen your SSN will use it to obtain employment and not pay taxes. Their employers will report those earnings to the IRS, but when you file your real return, you obviously won’t include the phony income. Once the IRS catches the discrepancy, it will send you an action letter stating that you’ve failed to declare all of your income.
- If your income falls below a certain level, you may not be required to file a return. However, if someone has used your SSN to get a job that generates enough taxable income, and they fail to file a return, you may receive a collections notice — often a sign of identity theft.
- More recently, there’s been an outbreak of COVID-19 scams related to economic impact payments, whereby identity thieves have been deploying a rash of calls, texts, and email phishing attempts that ask you to verify or provide your financial information so you can get a government payment or refund faster. The IRS never contacts taxpayers using these methods. Instead, go directly to gov for the most up-to-date information.
Victims of tax identity fraud usually only find out that they’ve been ripped off when the IRS refuses to process the legitimate return because, according to its records, the taxpayers have already filed returns, and refund checks have been issued. In some cases, tax identity thieves use children’s stolen SSN or a deceased taxpayer’s stolen identity to try to get a refund or to claim the children as dependents. Worse yet, it reportedly can take months, and in some cases years, to remedy tax-related identity theft and square accounts with the IRS.
4 Recommendations for Avoiding Tax Identity Theft
With all that’s happening with COVID-19, job disruptions, and the related financial fallout, avoiding being victimized by tax-season scams may be low on your to-do list. But here are four easy steps you can take to remain vigilant:
- File early. If you can file your return early, do so. The IRS processes returns mostly on a “first come, first served” basis, and filing early takes the advantage of time delays away from criminals.
- Secure your sensitive information. If you would not put it on the outside of an envelope and mail it, it is sensitive information. Never send such information via email or text or provide it over the phone to unknown callers. The IRS will never contact you by email, phone, or text, so if you receive requests through one of these channels that appear to come from the IRS, ignore them (or at least call your local IRS office to verify before doing anything about then). If you file online, always use a secure connection. Don’t file your taxes using an unsecured public Wi-Fi, and don’t write down passwords in public areas. Whenever possible, hand-deliver or security ship your sensitive tax documents to your trusted tax preparer and use the Certified Mail or Signature Required options to confirm delivery.
- Protect your Social Security number. If you suspect your SSN has been lost, stolen, or compromised, you’re at a higher risk of identity theft. Be very suspicious if (1) you receive a letter from the IRS about a tax return you did not file; (2) are not permitted to e-file your tax return because of a duplicate SSN; (3) receive a notification that an online IRS account has been created in your name when you never took any action; or (4) you get a notice from the IRS claiming that you received wages from an employer you’ve never heard of or worked for.
- Check your credit report regularly, at least once a year. It is always a good idea to check your credit report during tax season and place a credit freeze when necessary.
If you or your business has been victimized by tax-related identity theft, visit this IRS website page to learn about further actions you can take. In addition, there are a number of identity theft protection solutions from IdentityForce that can help put your mind at ease.
Get started with a free 30-day trial of the #1 consumer-rate Identity Theft Protection from IdentityForce.