5 Things You Need to Know About Tax Identify Theft
Today is April 15. And while filing by the tax deadline might be a cause for celebration, for a few unfortunate taxpayers getting that return filed will come with an unpleasant surprise: the revelation that their tax identity has been stolen! This often comes to light when a taxpayer, upon filing their return, discovers that a return using their tax information has already been filed, or when they’re notified by the IRS that they’ve underreported their wages—an indication that a thief has used their Social Security number to apply for a job.
Yes, identify theft is big news right now! So here are five things to know about tax identify theft.
5 things to know about tax identity theft
1. Tax time is prime time for tax scammers
Scammers who have unscrupulously obtained Social Security and other personal information are well aware that the tax filing season is the perfect time to cash in on their unlawful efforts by using stolen information to file returns claiming refunds. Many of these criminals file early in the season before the taxpayer whose information they’ve stolen has had a chance to file. And incidents of tax related identify theft are significantly increasing.
On April 10 a U.S. Senate Committee held a hearing on Tax-Related Identity Theft, during which it was reported that the IRS identified more than a million incidents of identity theft in 2011, and as of December 31, 2012, had a identified almost 1.8 million incidents relating to 2012!
2. Identify theft is consistently at the top of the IRS’s dirty dozen
On March 26, the IRS released its annual “Dirty Dozen Tax Scams for 2013." The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year, but which peak during the tax filing season.
Number one on the list? You guessed it—identity theft! And this isn’t the first time identify theft has been at the very top of the IRS’ Dirty Dozen list!
3. The IRS never solicits financial or personal information by email
The IRS has been warning taxpayers about phishing emails for years. These generally involve scammers who send out emails with subject lines that read something like “IRS Notification—Please Read” or “Very Important Notice.” Often the email bears an uncanny resemblance to the IRS’ official website, but more importantly, it contains a message that criminals know is sure to get the unsuspecting recipient’s attention.
An email might inform the recipient that they’re due a refund they weren’t aware of, or might say that some official sounding (yet fake) agency, such as the "IRS Anti-fraud Commission" has found numerous fraud attempts on their back account which could lead to lost funds.
Whatever form these phishing emails take, they generally direct the recipient to click on a link where the recipient can enter their Social Security number, bank account, and other information. But as it has been doing for years, the IRS continues to remind taxpayers that the IRS does not initiate taxpayer communications through email.
You can read more about what to do if you encounter a phishing email at the IRS’s Report Phishing web page. In general the IRS requests that all suspicious emails be forwarded to the IRS’s phishing mailbox at: phishing@irs.gov.
4. Business tax identity theft is becoming more prevalent
While the main focus of tax identity theft has centered on stolen Social Security numbers and personal information, business entities have been targeted as well. A legal entity, such as a corporation, is considered a “tax person” and often has its own tax number known as its Federal Employer Identification Number or FEIN.
Scams involving stolen FEINs include using a business’s FEIN to falsely report W-2 wages and withholding to the IRS and state agencies. These fake wages are then reported on tax returns filed using stolen SSNs allowing the criminals to obtain refunds of supposedly overwithheld taxes.
For the business, this creates a discrepancy between the true payroll they remitted taxes on and what the IRS or state agency believes they should have remitted payroll taxes on. Because failing to remit payroll taxes that were withheld is a serious offense, business owners are left to deal with the tax authorities and the negative impact on their business.
In 2012, criminals in Atlanta did exactly this when they used an Atlanta based franchisee's FEIN to create more than 100 false W-2 forms on which they reported more than $4million in fake salaries to the IRS and the Georgia Department of Revenue. The resulting payroll taxes the franchisee was liable for? Approximately $800,000!
5. Scammers are now targeting users of popular tax preparation software
It's not just phishing emails purporting to be from the IRS and bogus IRS websites that taxpayers need to worry about. Recently, Intuit, the maker of the popular tax preparation software, TurboTax, reported that it had observed an increase in bogus emails that were supposedly coming from the software company.
One example of a fraudulent email included a message that read, “Your Intuit.com order confirmation.” Just like the phishing emails scammers send out impersonating the IRS, these emails are also intended to steal the recipient's tax and financial information.
However, unlike the IRS which never solicits information by email, it is common for taxpayers to receive legitimate emails from their tax preparation software vendor. For instance, TurboTax customers who e-file their federal and state returns through the company’s software will receive an email from Intuit’s Electronic Filing Center (IntuitElectronicFilingCenter@intuit.com) confirming that their federal or state return has been accepted. These emails, with subject lines such as “E-File Successful” or “Federal Return Accepted” are easy for criminals to duplicate in order to dupe unsuspecting taxpayers.
Tax identity theft can happen to anyone
It’s April 15th and for those of you who have filed by today’s deadline, you’re likely breathing a sigh of relief. For others, the nightmare might just be beginning. Unfortunately, tax identity theft can happen to anyone, even high-ranking officials.
Just last week, a Mississippi newspaper reported that Mississippi Representative Lester "Bubba" Carpenter discovered he was a victim of identity theft when he received an IRS refund check in the mail for a return he hadn't yet filed. Apparently the thief who used his information entered an invalid bank account routing number, so when the IRS was unable to deposit the refund in the thief's account, the IRS simply mailed the refund to the legislator's address on record (which the thief failed to update).
To avoid being a victim the IRS suggests shredding all sensitive documents, refrain from providing a Social Security number (and questioning the requester as to why the number is needed), being cautious when using public Wi-Fi networks, and installing and maintaining security software on your devices and firewalls. The IRS realizes this is a serious problem and is working hard to combat tax identity theft.
If you think you’ve been a victim of tax identity theft, the IRS has numerous resources on its site on several tax identity theft topics. In addition to the IRS’ Report Phishing web page the following web pages contain information, including links to IRS publications, bulletins and YouTube videos, to help taxpayers protect against identity theft and who become victims of identity theft. (See the IRS web pages: Suspicious Emails and Identity Theft and Identity Theft Central.)
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