This is a post I put together for my own internal security awareness program. Feel free to grab and use within your own organization. Created with help from ChatGPT.
Tax season is a time when individuals and businesses focus on filing their returns and securing their refunds. However, it is also a prime opportunity for fraudsters looking to exploit the system. One particularly alarming form of fraud is when criminals file tax returns on behalf of individuals without their knowledge, stealing valuable refunds in the process. This type of fraud, known as tax-related identity theft, can have serious financial consequences for the victim. In this post, we'll dive into how this scheme works, its impact, and the steps you can take to protect yourself.
How the Scheme Operates
Data Acquisition Criminals obtain personal information through a variety of methods, such as data breaches, phishing attacks, or purchasing stolen data from underground markets. This personal information—such as your Social Security number and other identifying details—becomes their key to committing fraud.
Filing False Returns Once they have the necessary information, criminals file tax returns on behalf of individuals without their consent, typically early in the tax season to get ahead of the legitimate filer.
Refund Diversion The fraudsters request that the refund be deposited into bank accounts they control, bypassing the rightful taxpayer entirely. By the time the legitimate taxpayer files their return, the criminals have already claimed the refund.
Consequences for Victims
Delayed Refunds The IRS will flag the duplicate filings, resulting in significant delays for the legitimate taxpayer's refund. This can cause frustration and financial strain, especially if the refund was anticipated to cover expenses.
Tax Liabilities Victims may find themselves liable for taxes owed on fraudulent returns filed by the criminals. This unexpected liability can lead to a tax debt that wasn’t part of the original financial planning.
Identity Theft Beyond the immediate tax consequences, the stolen personal information can be used in other fraudulent activities, such as opening new credit accounts or applying for loans in the victim’s name.
How to Protect Yourself
File Early One of the best ways to prevent criminals from filing fraudulent returns is to file your taxes early. The sooner your return is filed, the less likely criminals are to file a fake return using your information. Early filing reduces the opportunity for fraudsters to get to your refund first.
Use a Reputable Tax Service Ensure that the tax preparer you use is legitimate and has a good reputation. If you're using a tax professional, verify their credentials, such as their IRS Preparer Tax Identification Number (PTIN). Check online reviews or ask for referrals from trusted sources to avoid working with fraudulent tax preparers who might exploit your information.
Consider an Identity Protection PIN (IP PIN) The IRS offers an Identity Protection PIN program, which provides an added layer of security for taxpayers. This PIN is used when filing taxes and helps prevent unauthorized returns from being filed in your name.
Conclusion
Tax fraud in the form of criminals filing fraudulent returns can cause significant stress and financial loss. By understanding how the scheme works and taking proactive measures, you can better protect yourself from becoming a victim. Filing early, using a reputable tax service, monitoring your personal information, and using additional security measures like an IP PIN are all critical steps in preventing and mitigating the effects of tax-related identity theft.
Further Reading
For more tips on protecting yourself from tax fraud, visit the IRS website and read about common scams and how to avoid them.