How to protect yourself from tax refund fraud

Knowing a tax refund is on the way can be a big relief or a chance to buy or do something special. And the sooner the refund arrives the better. But fraud could delay your check.

The IRS identified over 1 million fraudulent returns in 2017 and for victims of tax identity theft, the wait can drag on for almost a year — 278 days on average according to a story in USA Today. Not to mention victims may have to deal with a lot of red tape to get what’s rightfully theirs. That’s why it’s critical to understand:

  • How tax-related identity theft works
  • How to reduce your chances of becoming a victim
  • What to do if you do become a victim

How tax identity theft works

In 2016, employment- and tax-related identity theft were the number one form of the crime, accounting for 34 percent of consumer complaints according to the Federal Trade Commission. In fact, tax-related identity theft has been a huge problem for the Internal Revenue Service (IRS) and taxpayers alike for many years.

For many years, tax identity theft has been relatively easy. Criminals simply file a fraudulent tax return with a counterfeit W-2 form under the victim’s name and Social Security number (SSN), and then wait for a refund from the IRS.

If the IRS fails to identify the fraudulent return and sends a check to the fraudsters, then instead of a refund, victims receive a notification that their return already has been filed.

A tax return could also be delayed if another person uses a stolen SSN for employment. For example, if an employer reports a fraudster’s income under your SSN, your return will be flagged for unreported wages.

The good news this year is that the IRS is getting better at detecting and stopping fraudulent returns. The bad news is that the identities of 143 million people were exposed in a data breach at Equifax in 2017, making tax identity theft awareness critical.

Prevention is the first step

Filing your tax return early is the best thing you can do to reduce the chance of becoming a tax fraud victim. This reduces the chance that crooks will file ahead of you in your name.

It’s also important to be on the lookout for the warning signs of tax-related identity theft, which include:

  • A notification that your SSN was used to file more than one tax return
  • A notification about unreported wages.

Five recovery steps for tax identity theft victims

If you are a victim of tax-related identity theft, it’s important to do the following:

  • Submit an Identity Theft Affidavit using IRS Form 14039.
  • Continue to file your tax return. If your electronic submission is rejected, use a paper form and attach the Identity Theft Affidavit.
  • Respond promptly to IRS correspondence regarding the fraud.
  • Place a fraud alert with at least one of the three major credit bureaus (Experian, Trans Union, or Equifax).
  • Consider freezing your credit with each of the three credit bureaus.
  • Use your credit monitoring and identity protection services to keep an eye out for fraudulent accounts and other signs of fraud.

For more information

CyberScout is leading the charge against hackers and thieves, providing identity management, credit monitoring, and cyber security for more than 17.5 million households. Learn how Grinnell Mutual’s partnership with CyberScout® can keep you safer and help you recover after an identity theft faster.

Source: CyberScout