Americans have been warned that tax-related identity theft is likely to rise as a result of the Internal Revenue Service (IRS) pushing back the tax filing deadline to July 15. According to IdentityForce, tax filers should be on their guard against a “significant uptick” in ploys to steal tax refunds after being afforded an extra three months to file their taxes due to the coronavirus. Last year alone, the U.S. Treasury Inspector General’s office recorded 13,737 fraudulent tax returns involving identity theft and identified more than three million additional tax returns flagged for identity theft. In total, this prevented $14.7 billion of refunds from being issued.
As highlighted by recent research revealing the cities which receive the biggest tax refunds, the COVID-19 outbreak means that tax refunds are set to assume an even greater level of importance for millions of American households that have seen their incomes impacted.
While systems such as the best identity theft protection services will have a role to play in combating such fraud, raising awareness of how the scams work, and urging tax filers to look out for telltale signs that something might not be right, is vital too.
Why the tax filing extension will help scammers
Although most employees receive their W-2 forms in January, human nature means many won’t eventually file their taxes until much nearer the usual April 15 deadline. Of course, this year, the deadline has been put back to July, raising fears that those looking to commit fraud will have an extra three months in which to execute their plan.
Commonly, a scammer who has access to someone’s compromised Personally Identifiable Information (PII) - including Social Security number (SSN), birth date, full name, and street address - will look to file a phoney claim in that person’s name. The IRS will typically process refunds in as little as three weeks, unknowingly authorizing the fraudulent refunds to scammers in the mail or electronically, who will then convert it into untraceable cash.
The situation is even worse if people are not expecting a refund in the first place, as they are unlikely to contact the IRS to find out where their refund is.
The telltale signs of a tax identity scam
While tax identity theft can be difficult to detect before the fraud occurs, there are a number of things to look out for that might suggest something is amiss.
- 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, alarm bells should ring if the IRS sends 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 notices the discrepancy, you should receive a letter stating that you’ve failed to declare all of your income.
- It can be the case that you are not required to file a return if your income falls below a certain level. However, if someone has used your SSN to gain employment that generates enough taxable income, and they don’t file a return, you are likely to receive a collections notice that could indicate you have been the victim of identity theft.
- The Covid-19 outbreak has opened the door to a number of scams related to coronavirus stimulus checks, involving identity scammers deploying calls, texts, and email phishing attempts that ask you to verify or provide your financial information so that you can get a government payment or refund faster. The major giveaway here is that the IRS will never contact taxpayers using these methods.
Sadly, tax identity fraud usually only comes to light when it’s too late and the IRS declines to proceed with a legitimate return. Other practices include identity scammers using children’s stolen SSN or a deceased taxpayer’s stolen identity to try to get a refund or to claim the children as dependents.
How to avoid tax identity theft
It can take months, and sometimes years, to put right the problems caused by identity theft and return people to the correct financial position. Then there is the associated stress and inconvenience to contend with too.
Avoiding becoming the victim of identity theft is therefore key, and there are five steps that you can take that will help you to remain vigilant:
- File early. Quite simply, if you can file your return early, it will take away the advantage that time delays afford to scammers. The IRS usually works on a “first come, first served” basis, so get your return in before a scammer has the chance to.
- Secure your sensitive information. Anything besides your name and address should be regarded as sensitive information, and protected accordingly. This means you should never send sensitive information via email or text or provide it over the phone to unknown callers, while also be aware that the IRS will not contact you by email, phone, or text - if you are contacted via these channels by someone claiming to be the IRS, then it is unlikely to be them.
- Secure connection. Online filers should always use a secure connection and the best antivirus software - certainly never file taxes using an unsecured public Wi-Fi. The best identity theft protection services are obviously a must for e-filers too, and if possible, it is also best to hand-deliver or security ship sensitive tax documents to a tax preparer, and use the Certified Mail or Signature Required options to confirm delivery.
- Protect your Social Security number. If you think your SSN is lost, stolen, or somehow out in the open, identity theft becomes an even greater threat. Suspicions should be aroused if you receive a letter from the IRS about a tax return you did not file or cannot e-file your tax return because of a duplicate SSN. Also be wary if you become aware that an online IRS account has been created in your name that wasn’t down to you, or the IRS contacts you regarding wages from employment that you didn’t undertake.
- Check your credit report regularly. As a matter of course, it is good practice to check your credit report with the best credit report services at least once a year. If you can do this during tax season, that is preferable too.
Importantly, if you think you or your business has been the victim of identity theft, you should report it immediately. The IRS website has more detailed information about the action you should take.