TIP: Tax Refund Fraud Schemes Proliferate Online

Tax refund fraud is on the increase. Taxpayers caught in these scams often spend months trying to resolve the problem and get the refund they deserve. Authorities suspended some state electronic tax filings (federal returns were unaffected) at the beginning of February in response to a flurry of fraudulent returns. The FBI is involved in investigating the situation.

What’s the Problem?

In these recent cases, cyber criminals are using someone else’s Social Security number to file a tax return seeking a refund. The fraud usually is discovered only after the taxpayer files a legitimate tax return and discovers an earlier return has been processed without the taxpayer’s knowledge or consent. To date, the problem appears to be confined to state tax returns. It is thought that some 18 states have been affected by this fraudulent scheme. Initially, some state Tax Commissions were concerned that the security breach might have involved popular consumer tax software programs, but it is thought now that the problem is not confined to specific tax filing software. The federal government has been busy tackling cybercrime, too, and has developed additional security measures to protect taxpayers. Last year, the IRS intercepted more than 3.5 million returns that involved stolen personal data.

Protect Yourself

Despite the increase in fraudulent returns using stolen data, tax authorities still recommend

e-filings. Here are some steps you can take to minimize your chances of falling prey to online identity theft.

1. Call on your professional tax advisor to help you better understand what is currently happening, and to learn more about identifying the red flags that could put you at risk.
2. The IRS will provide you with PIN (personal identity) protection under a new pilot program if you believe you are at risk for this type of tax scam. You will be required to complete an affidavit and supply proof of identity before the IRS will give you a PIN. Any federal tax return forms filed under your name must include this new PIN in order to be accepted and processed.
3. Complete your tax returns as soon as you can to reduce the chance of a thief filing first.
4. Regularly change your password and username when filing online, and perform the same security measures as you do in other areas of your business/finances. Shred confidential documents, store sensitive information in locked files and keep your computer system’s virus and anti-malware programs up to date.
5. Be aware that the most popular online tax filing software has added an extra layer of security, which is required if someone logs on to tax filing forms using your data from an unfamiliar computer or a handheld device.
6. Don’t give out personal data over the phone or via email in response to “urgent” communication from individuals who claim to be with the IRS. Be alert to phishing requests: suspicious phone calls from individuals claiming to be IRS officers; or emails purporting to be from the IRS. The IRS doesn’t initiate contact like that.

Treat your tax filings with as much care and security savvy as you use in other areas of your personal and business/financial dealings. Shred confidential documents, store sensitive information in locked files and keep your computer system’s virus and anti-malware programs up-to-date.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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