Protect Yourself From Tax ID Fraud and Other Scams
April 13, 2016 | Your Finances
It’s no secret that tax fraud and tax-related scams are on the rise. In fact, according to a 2015 Government Accountability Office report, the IRS paid $5.8 billion to fraudsters in 2013 alone.
While a handful of the perpetrators will be caught, many more will get away with it, bilking a system that’s struggling to keep up with the growing problem—and leaving taxpayers from Alaska to Florida feeling vulnerable.
One of them is Anthony Sicilia, a telecommunications consultant who lives in Wauwatosa, Wisconsin. In 2015, Sicilia’s accountant filed his tax return only to learn that the IRS had already received one on his behalf. “I got a phone call from my accountant saying that my tax return was rejected because it had already been filed,” he said. “It came as quite a shock.”
On the advice of his accountant, Sicilia contacted the IRS and talked to an agent. After answering a number of questions validating his identity, he was given a special PIN that would allow him to safely and legitimately file his 2014 return and all returns going forward.
Sicilia’s experience is one of the most common examples of tax fraud today. Equipped with just your Social Security number and birthdate, identity thieves file a bogus return on your behalf. Because the IRS has no reason to believe the return is fake—unless you’ve already filed—it processes the return and sends the refund to the thieves. More often than not they get away with it.
While Sicilia’s example revolves around tax returns and refunds, another tax scam that’s making the rounds starts with a phone call from a fake IRS representative. Posing as an agent, he or she will claim you owe back taxes and demand you pay up immediately by wire transfer or with a prepaid debit card. The fake agent may even provide a badge number and possess personal information that makes him or her very convincing. If you refuse to pay, these “agents” threaten arrest, deportation or suspension of your driver’s license.
The perpetrators of this scam, which has been reported in every state, rely on intimidation and the gullibility of taxpayers to get what they want. They hide behind unknown phone numbers and seem to vanish once they have your money. Attempts to track these phone calls or catch up with the perpetrators usually lead to dead ends.
Protecting Yourself From ID Fraud and Tax Scams
The trouble with tax ID fraud is that you usually don’t know you’ve been targeted until after it has happened, as in Sicilia’s case. Being a victim also means your Social Security number and other personal information have been compromised, leaving you vulnerable to further identity theft. Therefore, your best defense against becoming a victim is to prevent it from happening in the first place.
Never give out your Social Security number unless it’s absolutely necessary. While many entities will request it, you may be surprised to learn that most can do without it. If you keep your Social Security card in your purse or wallet, move it to a safer place and rely on memory when you need it. Thieves typically acquire your personal information by hacking into servers of businesses and organizations that have it on file or by stealing it outright. Following these two simple steps can greatly limit their potential access.
In the event you do become a victim of tax ID fraud, the sooner you notify the IRS, the faster it can help, whether it means providing a secure PIN or collecting information that can lead to the perpetrators. The IRS also recommends you contact Experian, TransUnion and Equifax and have a fraud alert placed on your credit file. This will discourage thieves who have your Social Security number from opening credit cards in your name.
To protect yourself from further tax ID fraud, watch for these red flags indicating thieves may be targeting you:
• You supposedly owe taxes or have a refund coming for a year in which you didn’t file.
• Collection actions have been taken against you for a year in which you didn’t file.
• The IRS says you received wages or other income from employers you didn’t work for.
If you see any of these types of activity, notify the IRS immediately at 1-800-908-4490, and agents specializing in fraud prevention can assist you.
If a tax scammer calls you demanding money, hang up or ignore it no matter how threatening or intimidating the caller may get. The IRS will never contact you by phone to demand immediate payment. Nor will it ask for credit or debit card numbers or tell you to pay using a certain method. In fact, if you do owe the IRS money, you’ll be notified by mail, and you will always have the opportunity to question or appeal the bill.
While you can notify the IRS that you’ve received a tax scam call, know that the institution’s resources to track down these fraudsters are limited at best. Local authorities, too, will have difficulty pinpointing identity thieves who can operate from anywhere around the globe using a mobile device and accounts that are virtually untraceable.
If the worst-case scenario plays out and you do end up falling for this scam, the best thing you can do is chalk it up as a painful learning experience—then quickly move on by protecting your financial resources. Close out credit or debit cards that may have been compromised, alert your bank if you gave out account numbers, and resolve to be more aware in the future.
Whether you’re a tax ID target or fall prey to unscrupulous scammers, perhaps the best advice is to acknowledge it can happen to you. As Sicilia put it, “I always thought this was something you heard about on the news that happened to other people.” Now that he’s learned it can hit close to home, he’s much more prepared to protect himself.