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Tax fraud takes many forms. Even when you aren't instigating it, you may be on the receiving end of tax-related identity theft, IRS impersonation scams, shady tax preparation schemes, fraudulent requests for personal information and more.
Tax season is a good time to review the basics of protecting yourself from identity theft and avoiding scams in general. In particular, be on the lookout for these warning signs of tax fraud and tax-related identity theft.
1. Your Tax Return Is Declined
You try to e-file your tax return, but the IRS site says you've already filed. Chances are, someone has filed a fraudulent tax return using your identity so they can claim a refund. The IRS doesn't accept duplicate returns, so if an identity thief has filed first, your return will be rejected.
If your tax return was rejected under these circumstances, complete Form 14039 Identity Theft Affidavit, attach it to your paper tax return and mail both to the IRS. They'll investigate the duplicate return, clear the account and process the correct return. Also, contact the Treasury Inspector General for Tax Administration hotline at 800-366-4484 if you are a victim of tax identity theft.
2. You Get a W-2 or 1099 You Don't Recognize
You should receive tax forms around the end of January reporting your prior year's income: a W-2 form from your employer and 1099s from companies that paid you for independent contracting work. If you receive a W-2 or 1099 for income you don't recognize, someone may have used your name and Social Security number to collect income. At minimum, the company may have made an error by issuing you a tax form.
If you receive a W-2 or 1099 in error, contact the company that issued it and ask them to send a correction. You may also want to contact the IRS specialized identity theft unit at 800-908-4490 to alert them to any potential problems.
3. You Receive a 1099-G for Unemployment Benefits You Didn't Collect
In a similar vein, you may receive a Form 1099-G reporting unemployment benefits. If you didn't collect unemployment during the year, someone may have used your identity to file for unemployment, then had the income reported to the IRS in your name. Don't report fraudulent 1099-G income on your tax return; the IRS will investigate independently. Do consider reporting unemployment identity theft to the U.S. Department of Labor.
4. The IRS Asks You to Verify Your Identity
If the IRS receives a suspicious tax return, they may send you Letter 5071C or 6331C, asking you to confirm your identity using the IRS's online Identity and Tax Return Verification Service. The IRS won't process your tax return or issue a refund until you've verified your information.
If you haven't filed a return yet, let the IRS know as soon as possible. You can indicate this during the online verification process. Or call the Taxpayer Protection Program hotline number shown in your letter if you prefer using the phone to verify your identity and notify the IRS that you haven't filed a return (if that's the case).
5. You Get a Phone Call From the IRS
As a general rule, the IRS doesn't make unsolicited calls to taxpayers. If they have an issue with your tax file, they'll send a letter or bill via the U.S. mail.
Officially, the IRS website says it does not: "Initiate contact with taxpayers by email, text or social media to request personal or financial information; call taxpayers with threats of lawsuits or arrests; or call, email or text to request taxpayers' Identity Protection PINs."
Additionally, IRS agents do not demand payment over the phone or insist that you purchase gift cards to pay your tax bill. If you get an abusive phone call from someone impersonating the IRS, hang up. You can also report the call to the Treasury Department Inspector General for Tax Administration hotline.
6. Your New Tax Preparer Is Suspicious
Your new tax preparer wants you to sign your tax return before it's completed, or they ask you to pay the money you owe the IRS directly to them. This is not business as usual, and may be a sign that your tax preparer is planning to file fraudulent information on your return or take your tax payment money and run.
Also avoid ghost preparers, who refuse to sign your return or include their IRS Preparer Tax Identification Number. If their fee is based on the size of your refund, they may use false information to inflate your refund, which may be deflated when the IRS finds the discrepancy.
7. You're Notified About an Unclaimed Refund
In a recent scam, a special delivery arrives on IRS letterhead that says it's a notice "in relation to your unclaimed refund." According to an IRS consumer alert, this notice is a scam. Scammers may request detailed personal information, including photos of your driver's license, which they may use to steal your identity. If you receive this letter, don't respond.
8. You're Urged to File a Fake W-2 Form
Some scammers may try to entice you to commit fraud. A scam circulating on social media suggests using tax preparation software to create fake W-2 forms that show large amounts of income and withholding, which you use on your tax return to generate a refund. Here's the problem (in addition to the basic problem of committing fraud): The IRS verifies information on W-2 forms. Fake forms won't pass muster. Filing a fraudulent tax return carries a range of penalties, including criminal prosecution.
9. Your IRS File Is Active, but You Aren't
You may be at risk for tax-related identity theft if any of the following have happened to you:
- You get a letter from the IRS about a tax return you didn't file.
- You get a tax transcript in the mail that you didn't request.
- You get an IRS notice that an online account has been created in your name, but you didn't create it.
- You get an IRS notice that your existing online account has been accessed or disabled when you haven't taken these actions.
- You get an IRS notice that you owe additional tax, your refund is being offset or you are having collection actions taken against you for a return you didn't file.
- You've been assigned an Employer Identification Number, but you didn't request one.
Download the IRS' Identity Theft Information for Taxpayers for tips on identifying and dealing with tax-related identity theft. Contact the IRS identity theft unit at 800-908-4490 if you need help resolving an issue.
The Bottom Line
Most taxpayers file and pay their taxes without incident. However, if you suspect you've been the victim of tax-related identity theft or another tax scam, be safe. Don't respond to scam phone calls, letters, emails, social media messages or texts. If your tax preparer seems shady, walk away. Alert the IRS to any suspicious activity, including fake tax returns or tax forms, or IRS account activity that isn't you.
Because identity thieves may also use your information to open credit card accounts or take out loans, you should also check your credit report at all three credit reporting agencies. You can access all three reports for free at AnnualCreditReport.com. You also have the right to add fraud alerts or security freezes to your credit files to help prevent identity thieves from using your information to access credit. Finally, consider free credit monitoring to receive alerts whenever changes are made to your credit file—a good practice during tax season and all year around.