How to Protect Against Tax Fraud: A Consumer’s Guide
Tax season can be a stressful time for many individuals, but it’s also an opportunity for fraudsters to engage in tax-related identity theft. To help you safeguard your financial well-being, we’ve compiled essential information on how to protect yourself from tax fraud.
Let’s talk about how tax fraud happens, provide warning signs to watch out for, and what to do if you suspect you have fallen victim to this type of fraud.
How Does Tax Fraud Happen?
Tax fraud occurs when individuals or organizations use your personal information to file fraudulent tax returns, ultimately aiming to steal your tax refund or commit various other financial crimes.
Here’s a breakdown of how it typically happens:
- Stolen Personal Information: Fraudsters obtain your Social Security Number (SSN), name, and other personal details through various means, such as data breaches, phishing emails, or even by purchasing stolen data on the dark web.
- Filing False Tax Returns: Armed with your personal information, the criminals file bogus tax returns on your behalf, often inflating deductions or fabricating income to maximize their ill-gotten refunds.
- Claiming Your Refund: The fraudsters redirect your tax refund to their bank accounts, leaving you with a hefty tax bill and potential legal issues to resolve.
Tax Fraud Warning Signs
To protect yourself from falling victim to tax fraud, it’s crucial to be vigilant for warning signs:
❗Duplicate Tax Returns
If you receive notice from the IRS that multiple tax returns have been filed under your SSN, it’s a red flag indicating potential fraud.
❗Unexpected Tax Refund
Receiving an unexpected tax refund that you didn’t apply for can be a sign of tax fraud.
❗IRS Communication
Be wary of unsolicited emails, calls, or text messages claiming to be from the IRS. The IRS typically communicates through official mail correspondence, not through electronic means.
❗Account Lockout
If you try to e-file your tax return and find that someone has already filed using your SSN, it could be a sign of tax fraud.
❗Unrecognized Income or Deductions
Review your tax return carefully for any income or deductions you don’t recognize, as these could be fraudulent entries.
What to Do if You Suspect Tax Fraud
If you suspect you are a victim of tax fraud, take immediate action to minimize the damage:
Step 1. Contact the IRS
Reach out to the IRS by calling the Identity Protection Specialized Unit at 1-800-908-4490. Inform them about the suspected fraud and follow their guidance.
Step 2. File a Police Report
Report the incident to your local law enforcement agency. Having a police report can help protect your legal rights in case of identity theft.
Step 3. Place a Fraud Alert
Contact one of the three major credit bureaus (Equifax, Experian, or TransUnion) to place a fraud alert on your credit report. This will make it more challenging for fraudsters to open new accounts in your name.
Step 4. Review Your Credit Report
Regularly monitor your credit reports for any unauthorized activity. You can obtain one free credit report from each bureau annually at AnnualCreditReport.com.
Step 5. Update Your Security
Change your passwords for financial accounts, email, and social media to prevent further unauthorized access.
Step 6. Consider Identity Theft Protection
Consider enrolling in an identity theft protection service to safeguard your personal information and monitor for suspicious activity.
Tax fraud is a serious threat during tax season, but being aware of how it happens, recognizing warning signs, and knowing what steps to take if you suspect you’ve fallen victim can help protect your finances and personal information. By staying informed and proactive, you can reduce the risk of becoming a victim of tax-related fraud and ensure a smoother tax season ahead.
