What Are the Warning Signs of Tax Fraud?

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Tax fraud is a serious issue in the United States. In fact, the IRS stopped a total of $24 billion in fraudulent tax refunds from 2015 to 2018.

Signs that you're a target of tax fraud include the inability to file a tax return because it's already been filed, intimidation by phone calls or emails demanding tax payment, and odd requests by a tax preparer. Here's how to spot the signs of tax fraud and what you can do if you think you've been victimized.

What Is Tax Fraud?

Scammers can defraud you at tax time in several different ways. Many involve tax identity theft, where a person obtains your name, address and Social Security number and uses this information to file a tax return in your name before you do to steal your tax refund.

Part of this scheme can involve creating fake federal W-2 forms that show you've withheld a lot of money—and will receive a large refund. Fraudsters will have the refund deposited into their bank account, which they'll likely close once they receive the funds.

This is just one form of tax fraud, and it doesn't always provide warning signs. But that doesn't mean you're powerless to detect certain types of scams.

How to Detect Tax Fraud

The most common signs of tax fraud include:

  • Your return has already been filed: Unfortunately, you may not be aware that you're a victim of tax fraud until it's too late. Here's what can happen: You file your return and wait for your refund. Then you get a rejection from the IRS telling that your information has already been used in a different return.
  • An unknown employer sends you a tax form: You receive a W-2 or 1099 form from an employer you're unfamiliar with. The IRS may also reach out to you and inform you that this employer has paid you.
  • You receive a tax refund you didn't expect: If you get a paper refund check in the mail that you didn't request, don't get too excited. A criminal may have had it sent it to you by accident when they wanted to have it sent somewhere else.
  • The IRS asks you to verify information: If the IRS detects a suspicious tax return, it may send you a letter that asks you to confirm you're the one who is actually filing with your name and Social Security number.
  • You owe more money to the IRS but can't figure out why: In the event the IRS states you owe them more money but you can't determine why after carefully reviewing your income or deductions, you may be a victim.
  • You use a new tax preparer who has odd requests: This could include wanting you to sign your return before it's completed, not asking you for W-2s or requiring you to pay them instead of the IRS for taxes owed.
  • You get phone calls from the IRS demanding payment: The IRS will never call you to request payment or ask for personal identity information. They also will not call you to tell you they're involving law enforcement in regard to your tax return.

What to Do if You Think You're a Victim of Tax Fraud

If you believe you're a victim of tax fraud, don't panic. Fortunately, the IRS is on your side and there are things you can do to recover from the situation including:

  • Complete the IRS Identity Theft Affidavit. This informs the IRS that you may be a victim of tax fraud and prompts them to investigate your case.
  • File a report with the Federal Trade Commission (FTC). Visit IdentityTheft.gov and click on "Someone else filed a Federal Tax Return using my information." Then, fill out the form and provide additional information such as your driver's license number to verify your identity.
  • Report the scam to the Treasury Inspector General for Tax Administration.
  • File a police report. The FTC recommends filing a police report. If you do so, make sure you include any documents and forms that are related to the fraudulent tax returns. The more information you can provide, the better.
  • Consider placing a credit freeze with the three national credit bureaus (Experian, TransUnion or Equifax) to prevent scammers from using your personal information to open credit accounts in your name. To place a security freeze on your Experian credit report, go to the Experian Security Freeze Center.

Protect Yourself From Tax Fraud

Unfortunately, you can't always prevent tax fraud. What you can do, however, is reduce your risk of becoming a victim of it. Be aware of the signs of tax fraud, keep your Social Security number private, file your taxes early and protect all your devices with strong passwords. Taking these preventive measures can save you headache and stress down the road.