The Internal Revenue Service reports that tax identity fraud is on the rise in 2018—and the IRS is warning taxpayers to be vigilant about tax ID fraud.
"Thousands of people have lost millions of dollars and their personal information to tax scams," the IRS reports. "Scammers use the regular mail, telephone, or email to set up individuals, businesses, payroll and tax professionals."
Most Threatening Types of Tax Fraud in 2018
It's up to taxpayers to recognize the most pervasive and penalizing tax fraud scams and take direct action to fight it.
Here are the most threatening tax fraud scams, according to the IRS:
1. Scams Targeting Tax Professionals
"Increasingly, tax professionals are being targeted by identity thieves," the IRS states. "These criminals—many of them sophisticated, organized syndicates—are redoubling their efforts to gather personal data to file fraudulent federal and state income tax returns."
2. IRS-Impersonation Telephone Scams
The IRS defines this fraudulent activity as "a sophisticated phone scam targeting taxpayers, including recent immigrants, has been making the rounds throughout the country." Callers claim to be IRS employees, using fake names and bogus IRS identification badge numbers, the tax agency notes.
"They may know a lot about their targets, and they usually alter the caller I.D. to make it look like the IRS is calling," the agency states. The IRS states that it "doesn't initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information." Consequently, if you haven't received something in the mail from the IRS, it's not legit.
3. W-2 Scams
"During the last two tax seasons, cybercriminals tricked payroll personnel or people with access to payroll information into disclosing sensitive information for entire workforces," the tax agency states. "The scam affected all types of employers, from small and large businesses to public schools and universities, hospitals, tribal governments, and charities."
The IRS notes that it's working with businesses that will enable both the company and any payroll service providers to quickly report any data losses related to W-2 scams. "If notified in time, the IRS can take steps to prevent employees from being victimized by identity thieves filing fraudulent returns in their names," the IRS states.
4. Email, Phishing and Malware Scams
Phishing is a tax fraud scam that's been around for years, but lately, tax ID fraudsters are becoming more "sophisticated" with email based tax ID fraud schemes.
"Phishing (i.e., fishing for information) is a scam where fraudsters send e-mail messages to trick unsuspecting victims into revealing personal and financial information that can be used to steal the victims' identity," the IRS states. If you get such an email, delete it immediately, the agency advises.
5. Fraudsters Posing as Taxpayer Advocacy Panel
Increasingly this tax season, taxpayers are finding emails in their inboxes that appear to be from the Taxpayer Advocacy Panel (TAP is a volunteer board that advises the IRS on systemic issues affecting taxpayers) regarding a tax refund, the IRS reports. "These emails are a phishing scam, trying to trick victims into providing personal and financial information," the IRS notes.
If you do see an email saying it's from the Taxpayer Advocacy Panel, forward it to firstname.lastname@example.org, the IRS advises. The agency notes that TAP "never requests, and does not have access to, any taxpayer's personal and financial information."
Read more here about all of the top scams happening now.
Tax Fraud Tools at Your Disposal
Despite the rise in tax fraud and theft, consumers have several prevention tools and strategies to protect their identity from thieves.
"Tax identity thieves have ramped up their tax-time fraud exploits in 2018 on two fronts: tax identity fraud and IRS imposter scams," says Eva Velasquez, president & CEO of the Identity Theft Resource Center.
"The amount of taxpayer victims has rapidly increased just this year due to new twists, like erroneous refunds, catching individuals off guard. By making informed choices when sharing identity credentials, filing tax returns as early as possible and verifying they are actually speaking to the IRS, a consumer can thwart identity thieves."
To take direct action against tax ID fraudsters, make good use of these tips:
1. File Your Taxes Early
Keep a step ahead of fraudsters by filing your tax return as early as possible. "Once the IRS has accepted the tax return, later attempts to file a second return (by a tax fraudster) will be rejected because the computer system recognizes that the document is present," says Thomas Williams, a tax accountant in Kissimmee, FL.
"However, that does not stop a con artist from filing an amended tax return, so it's critical to review your IRS account (the IRS walks you through that process here) on a regular basis."
2. Make Use of Different Passwords on Different Financial and Tax Accounts
Fraudsters can't make a move unless they have a key piece of your identity, like a Social Security number or a bank account number. Consequently, job one is to protect your key financial accounts and safeguard any fraudulent account entry.
"One should not use the same passwords on logging over all the accounts as if any of your websites is less secure it will make your personal information known on all the websites," says Pradeep Atrey, associate professor of computer science at University at Albany, SUNY. Read here for more tips on creating passwords.
3. Take Full Advantage of IRS Form 14039
It's a good idea to make use of the IRS's Identity Theft Affidavit (known as Form 14039) if you've been the victim of identity theft or if your Social Security number is compromised. In Section B of Form 14039, check the second box stating, "I don't know if someone used my information to file taxes but I am a victim of identity theft," says Robert Siciliano, a Boston-based identity theft expert.
"Explain all the various beaches where your information has been involved, such as any credit cards that have been compromised," Siciliano notes. "This puts the IRS on high alert and they will scrutinize who actually receives your tax refund."
How to Report Tax-Related Schemes, Scams, Identity Theft and Fraud
The IRS has a handy guide on tax fraud that both explains the threat, and provides tips on reporting the activity on irs.gov. Taxpayers can also report instances of IRS-related phishing attempts and fraud to the Treasury Inspector General for Tax Administration at 800-366-4484.
Don't let tax fraud happen to you. Follow the tips above to keep your tax return out of fraudster's hands—and in good safekeeping.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on February 23, 2018, and has been updated.