Brian Thompson, a CPA and tax attorney in Chicago, doesn't need to be convinced tax fraud against Americans is a huge threat - he knows that first hand.
"Tax fraud is certainly a growing problem," he says. "Last year, someone filed a fraudulent federal income tax return in the name and social security number of one of my clients in attempt to steal a sizable refund."
After Thompson prepared the taxpayer's return and attempted to electronically file it, his tax software indicated that the IRS and IL Dept. of Revenue rejected the attempted e-filing of the taxpayer's tax returns.
He received the following strange message on his tax software:
Error message: Taxpayer TIN in the Return Header must not be the same as a TIN of a previously accepted electronic return for the return type and tax period indicated in the tax return.
Based upon the error message from his tax software, Thompson suspected someone tried to steal his client's refund by filing a fraudulent tax return. "The client called the IRS, and the IRS confirmed my suspicion," he says. "Fortunately, the IRS noticed something suspicious about the fraudulent tax filing and froze e-filing for this taxpayer's SSN rather than issuing an income tax refund. The IRS required the taxpayer to file on paper, but at least the sizable refund was not intercepted by the fraudster."
Thompson says he is "unsure" how the fraudster acquired his client's personal data. "I suspect that someone is stealing letters that look like tax documents from the U.S. Postal Service or taxpayers' mailboxes," he explains. "Tax filers should try to receive important tax documents via email to thwart the theft of important tax documents."
Yet for the second year in a row, American's attitudes continue to be "careless" around identity theft during tax season, according to a report from CyberScout, a leading data security and identity theft protection firm, based in Scottsdale, Ariz.
According to CyberScout's report, "most Americans (58%) are not worried about tax fraud in spite of federal reports of 787,000 confirmed identity theft returns in 2016, totaling more than $4 billion in potential fraud." Additionally, only 18% use an encrypted USB drive, "a secure way to save important documents like tax worksheets," according to the report.
Also, 51% of taxpayers who expect a refund check in the mail have not taken precautions such as a locked mailbox, putting their check at risk of theft, the survey notes, and 50% of filers who use a tax service weren't sure how to evaluate them, chose someone online or didn't screen them beforehand, leaving the taxpayer vulnerable to scams, CyberScout reports.
"We've reached an extreme level of cybercrime, where identity theft has become the third certainty in life," said Adam Levin, founder and chairman of CyberScout. "In tax season, it is crucial that everyone remain vigilant and on high alert to avoid tax related identity theft or phishing schemes."
Levin says that, to successfully fight back, taxpayers need to follow a set strategy.
"That means to minimize any risk of exposure, monitor your accounts and your personal identity, and know how to manage the damage," says Levin. "If the worst happens, victims of identity theft should turn to organizations they trust, including their insurance provider, financial services institution, or the HR department of their employer, who offer low-cost or free cyber protection services to protect and restore stolen identities."
Levin also advises both taxpayers and tax preparers get a 'heads-up' on potential scams and cyber-attacks listed on the Internal Revenue Service website.
Other tax experts warn filers to keep their guard up when preparing and sending tax forms this year.
"Tax season is not exactly everybody's favorite time of the year, but for income tax fraudsters, it's payday," says Joe Gervais, tax fraud expert at LifeLock, the ID theft protection company. "Why? Because submitting fraudulent tax returns in your name and stealing the refund money is an easy thing to do."
Gervais says the W-2 form that tax information a filer's company just mailed isn't even required. "All fraudsters need is your Social Security number, name, and date of birth, then bingo," he says. "They can file your return and have it deposited onto a prepaid debit card, which is as good as cash. They walk away richer, and you're left holding the bag."
To minimize the chances of being exposed to tax fraudsters, Gervais advises contacting the IRS to see if you're eligible for an Identity Protection PIN, a "six-digit code assigned to you by the IRS (that) helps prevent misuse of your SSN on fraudulent federal income tax returns," he explains. Also, keep an eye out for phishing emails. "The IRS will never contact you by email, text, or social media," he offers. "If the IRS needs information, it will contact you by regular mail."
One trick making the rounds this year is using company letterhead to send tax-related letters to employees. "The e-mails are designed to look like they came from the big wigs at the company," says Robert Siciliano, identity theft expert and CEO of IDTheftSecurity.com. "As a result, the targeted employees are tricked into revealing sensitive data about the company's employees. The crooks end up with all this valuable data-enough to file phony tax returns."
"This ploy, called spear phishing, has already occurred at major companies," Siciliano states.
Those aren't the only fake tax documents that can lead to a cyber-crime against filers.
"Simply hit the delete button if you receive an email, as the IRS never contacts people by email," advises Dave Du Val, chief customer advocacy officer at TaxAudit.com. "While it's possible that an IRS agent could contact a taxpayer by phone, a demand for immediate payment by prepaid credit card is a clear give-away that the call is always fake - and you can fight back by simply hanging up the telephone and refusing to answer if they call you back."
"If there's any question at all as to the authenticity of a call, simply contact the IRS at 800-829-1040 and ask," Du Val says.
Each of the expert sources contacted for this story strongly encourage taxpayers to take the issue of tax fraud seriously, and with good reason.
As Siciliano says, if you don't file your taxes properly, somebody else will.