Taxes are one of the two integral parts of life. But we could add a third: tricks during tax season that try to steal your identity – and possibly your refund.
Between January and April, authorities expect a spike in telephone and email phishing attacks related to taxes, as well as cases of identity theft. There are two common types of tax fraud: one involves Social Security Numbers (SSNs) that are allegedly linked to some kind of suspicious activity, and the other threatens people with a tax bill from a fictitious government agency.
The first involves scammers who use an email or phone call to threaten to cancel or suspend the victim’s SSN due to overdue taxes. The scammers pose as IRS agents who threaten their victims with arrest and prosecution if they don’t pay fines “immediately”. Remember that the IRS does not contact taxpayers via email, phone calls, text messages, or social media to request personal or financial information.
The second scheme involves sending a formal letter threatening an IRS arrest or tax collection due to some non-existent government agency such as the Bureau of Tax Compliance. The email is trying to scare the recipient into paying the fine using a specific payment method such as a prepaid debit card, gift card, or bank transfer. (Note: The IRS never uses these forms of payment.)
WHAT TO LOOK FOR IN TAX IDENTITY FRAUD
Tax ID theft is especially difficult to detect before fraud occurs. But here are the general tell-tale signs:
• If your federal income tax return has already been filed by someone else using your personal information (PII), they may try to prevent your refund. Then, when you file a legal return, the IRS will send you a letter notifying you that your refund has already been issued.
• Sometimes thieves who steal your SSN use it for employment rather than paying taxes. But even if the fraudster’s employer withholds taxes, his employer will report those earnings to the IRS. Once the IRS discovers a discrepancy, it will send you an action letter stating that you have not declared all of your income.
• Over the past two years, there has been an outbreak of COVID-19 related economic impact payment scams where identity thieves use calls, texts and email phishing attempts to ask you to verify or provide your financial information, so that you can receive a government payment. or refund faster.
Victims of tax identification fraud usually only find out they have been scammed when the IRS refuses to process a legitimate return because said “taxpayers” have already filed returns and checks for refunds have been issued. Dealing with this can be a big problem.
FIVE RECOMMENDATIONS TO PREVENT TAX IDENTITY THEFT
Here are five steps you can take to avoid becoming a victim:
• Protect your confidential information. Never send personal sensitive information via email or text message. The IRS will never contact you through these methods, so if you receive emails or text requests that look like they are from the IRS, ignore them. If you are applying online, always use a secure connection.
• File early. If you have the opportunity to file your tax return early, do so. The IRS processes returns primarily on a first-come, first-served basis, and early filing allows criminals to take advantage of time delays.
• Protect your social security number. Be very suspicious if (1) you receive a letter from the IRS about a tax return you didn’t file; (2) you are not allowed to file your tax return electronically due to a duplicate SSN; (3) be notified that an online IRS account has been created in your name if you have not taken any action; or (4) you receive a notice from the IRS claiming that you received wages from an unknown employer.
• Check your credit report regularly, at least once a year. You can download your credit report once a year at freecreditreport.com for free during the tax season and freeze your credit if necessary.
• Register for an Identity Protection PIN (IP-PIN). Last year, the IRS made its IP PIN program available to all taxpayers. Previously available only to victims of identity theft or taxpayers in certain states, the IP PIN is a six-digit code known only to the taxpayer and the IRS. This helps prevent fraudsters from making false returns using your PII.
If you or your business has been the victim of tax-related identity theft, contact the police or the FBI and visit the IRS.gov website for further steps you can take.
The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations to any individual.
Bruce Helmer and Peg Webb are financial advisors at the Wealth Enhancement Group and co-hosts of Your Money at WCCO at 8:30 am on Sundays. Email Bruce and Peg at firstname.lastname@example.org. Securities offered through LPL Financial, a member of FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.