Behind the Scenes: Unveiling Tax Identity Theft Tactics
In the digital era we are in, tax identity theft has emerged as one of the most common cybercrimes.
Identity theft can lead to various adverse outcomes, such as financial losses, harm to your credit score, and legal complications.
With businesses organizing financial data for filing and consumers waiting for their W-2s to become available, tax identity thieves and scammers posing as the IRS are also gearing up for tax season.
In this comprehensive guide, we delve into the insidious world of Tax Identity Theft, unraveling its nuances, understanding its types, and equipping you with crucial strategies to protect yourself.
What Is Tax Identity Theft?
Tax Identity Theft is a crafty scheme wherein fraudsters use your Social Security number (SSN) to file fraudulent tax returns and claim undeserved refunds.
Fraudsters can also use your SSN to apply for loans and even get jobs. It’s a clandestine operation that can wreak havoc on your financial life, leading to complications with the IRS and the potential loss of your hard-earned money.
Regrettably, tax identity theft spares no one. Anyone with a Social Security number, regardless of age, is susceptible.
How Tax Identity Theft Works?
“Tax identity theft operates in the following manner: The majority of employees receive their W-2 forms from employers by the end of January. Exploiting the fact that many individuals delay filing until April, a scammer with access to compromised personal details (like a social security number, full name, and street address) seizes the opportunity to file in someone else’s name,” says David Beckerman, Senior Vice President, Investments at David Lerner Associates, Inc.
Some tax ID thieves specialize in using children’s identities to claim them as dependents falsely. With the IRS aiming to process refunds in as little as three weeks, these scammers swiftly convert their fraudulent refunds into untraceable cash, either through mail or electronic means. The legitimate taxpayer often discovers they are a victim only when the IRS refuses to process their actual return, as per its records, a return has already been filed.
Types of Tax Identity Fraud
There are 2 main types of tax identity theft:
- Refund Fraud: Here, scammers file a tax return on your behalf, claiming a hefty refund. They aim to pocket your legitimate tax refund before you even file. Refund fraud is difficult for the IRS to detect. The threat may not become apparent until you attempt to file and the IRS informs you that a return bearing your name has already been submitted.
- Employment Fraud: In this fraud, thieves use your identity to secure employment. The income earned gets reported to the IRS by the identity thief’s employer, creating a web of deceit that can tangle your legitimate tax filings.
How to Protect Yourself Against Tax Identity Theft
It’s best to protect yourself from tax identity theft before it happens.
- Shred Sensitive Documents: Invest in a shredder to destroy sensitive documents like bank statements and old tax returns. Thieves often sift through trash to find valuable information.
- Employment Fraud: In this fraud, thieves use your identity to secure employment. The income earned gets reported to the IRS by the identity thief’s employer, creating a web of deceit that can tangle your legitimate tax filings.
How to Protect Yourself Against Tax Identity Theft
It’s best to protect yourself from tax identity theft before it happens.
Here are a few tips on how you can do that:
- Shred Sensitive Documents
Invest in a shredder to destroy sensitive documents like bank statements and old tax returns.
Thieves often sift through trash to find valuable information.
- File Early
Submitting your return early thwarts fraudsters trying to file in your name.
File promptly upon receiving your W2s to safeguard your refund.
- Beware of Phishing Scams
Be cautious with emails or messages claiming to be from the IRS or another legitimate organization, such as state tax organizations.
The IRS doesn’t initiate contact via email. Verify the legitimacy of communication.
Should you receive an email purporting to be from the IRS, refrain from responding or clicking on any links. Instead, forward the email to [email protected].
- Watch For e-File Errors
If you e-file, check for any unexpected errors or rejection notices.
If the system informs you that a tax return has already been filed using your Social Security number or that one of your dependents has been claimed on a different tax return, this could be a sign that someone has already filed using your information.
- Pay Attention to Notices Sent by the IRS
Take IRS notices seriously. If you receive one about a suspicious return or income you didn’t earn, act promptly.
Only trust official mailed IRS letters. The IRS won’t contact you via email, text, phone calls, or social media.
Verify any contact claiming to be from the IRS via the official hotline at 1-800-829-1040.
- Stay up-to-date on Major Data Breaches
Keep tabs on major data breaches.
High-profile data breaches, often featured in news reports, have lasting impacts as criminals may wait months or even years before exploiting the stolen personal data.
If a company you deal with experiences a breach, change your passwords and monitor your accounts for unusual activity.
- Use Multi-Factor Authentication on Financial Websites
Add an extra layer of security by activating multi-factor authentication on your financial accounts.
Multi-factor authentication enhances security by demanding two or more credentials for account access, such as something you have (e.g., a passcode via text or an authentication app) and something you are (e.g., fingerprint, retina, or face scan).
This method adds an extra layer of defense, making it challenging for scammers to access accounts even if they obtain usernames and passwords.
- Get an IRS Identity Protection PIN
The IRS offers a 6-digit Identity Protection PIN for added security.
Set it up at Get an IP PIN to ensure your identity when filing.
This makes it significantly harder for thieves to gain access.
Pro Tip: IP PINs are effective for a single year, meaning that if you enroll in a PIN now, it will remain valid for one year.
What If Tax Identity Theft Happens to Me?
If you become a victim of tax identity theft, go to IdentityTheft.gov to report the incident to the IRS and the FTC and receive a personalized recovery plan.
Utilize IdentityTheft.gov to submit an IRS Identity Theft Affidavit (Form 14039) online as your initial recovery measure.
Conclusion
At David Lerner Associates, we recognize the importance of securing your financial identity. Tax Identity Theft is a stealthy adversary, but armed with knowledge and vigilance, you can thwart its attempts.
By adopting these proactive measures, you not only shield yourself from potential financial loss but also contribute to a safer, more secure financial landscape.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.