We’ve all heard of identity theft that can cost a victim thousands of dollars and years to correct, but schemers are now taking it to a new level and trying to impersonate taxpayers with the IRS.
It works this way: As soon as the IRS starts accepting tax filings on Jan. 19, fraudsters use personal and financial information that they’ve gathered (stolen) about you to file a fake return and generate a refund that comes to them.
The true taxpayer usually finds out in one of two ways. When he or she files a return, they get a notice from the IRS that they have filed a duplicate return. Or the IRS, noticing something fishy with the return itself, flags it and the taxpayer receives a letter that their return is being reviewed.
If you receive a letter like this from the IRS, you should immediately contact them. Depending on how far along the fraudster got, it can cause you some degree of headache to unwind.
The IRS will require you to substantiate your identity and file various forms, and your own refund will likely be delayed. Since credit card theft often starts occurring about one year after tax identity theft, you would also be wise to place a “fraud alert” at one or all of the three credit bureaus and close any account opened without your permission.
Is there anything you can do to protect yourself?
The easiest is to file your tax return as early as possible. This gives the fraudster less of a window to claim your refund instead of you.
If you use a tax preparer, you should also make sure the firm has adequate security and data breach plans. The IRS has been reaching out to CPA firms about data breaches that steal taxpayer information. In one case, a CPA firm in Connecticut experienced a data breach that resulted in about 425 fraudulent returns filed on their clients.
While the IRS continues to beef up their own methods to catch tax identity theft, individuals can help by being alert to the issue and on guard for any suspicious activity.