Person filing their taxes online while following best practices for preventing tax return fraud

February 21, 2018

How to Help Prevent Tax Return Fraud

Tax season, and the flurry of detailed financial paperwork, mail and online filings it generates, is prime time for identity theft.

During the 2017 filing season, the Internal Revenue Service paid out $424 million in tax refunds based on fraudulent returns from identity thieves compared to $46.4 million in 2016, according to the U.S. Treasury. This is due to the substantial increase of the total value of the fraudulent refunds. In 2017, $961 million was claimed compared to $227 million in 2016.

Overall, the IRS has improved its ability to detect fraud due to steps it has taken to prevent fraudulent returns from entering the tax processing system. In 2017 it prevented 95.6 percent of fraudulent refunds, compared to 76.9 percent in 2016. Despite the improvement, the drastic increase of fraudulent activity seen in 2017 poses a threat for taxpayers this season.

It is crucial to take steps of your own to help ensure you aren't an easy target for tax refund fraud.

When Filing Taxes Online

About 92 percent of taxpayers file their returns electronically, which allows them to get their refunds quicker and avoid long lines at the post office. But safely filing online requires its own precautions.

Use Security Software

If you file using a tax software program, make sure it includes a firewall, anti-malware and anti-virus program, said David Albrecht, an enrolled agent who is senior manager in the Tax Controversy Group at New York-based accounting firm Anchin, Block and Anchin. “Make sure these programs are set to automatically update so that the software can stay current against the latest threats. And consider having firewalls for both hardware and software," he said.

Be Smart About Your Passwords

Change your password for tax and financial information on a regular basis, and make sure you're using strong passwords that aren't easily detected. Also, don't use the same password over and over: If it is compromised that could allow hackers access to dozens of sensitive accounts. If you use one password to log into your computer, use a different one to access your tax prep software.

Use a Secure Wireless Connection.

Never work on your tax return when you're online using a public Wi-Fi connection. Making sure your Wi-Fi is secure and password protected can help thwart hackers from obtaining your tax and financial information.

When Using a Professional Tax Preparer

Federal law requires professional tax preparers to use certain safeguards to protect your tax information. If you use a tax professional for help in preparing and filing your return, you should expect him or her to use best security practices.

Encrypted Email Information

If your tax preparer sends you tax documents by email, he or she should use password-protected files, Rosen said. That way, if the email is intercepted by a thief your files won't be accessible without your password.

Photo Identification

Most professional tax preparers will ask to make a copy of your driver's license. “Supplying a driver's license information can help prevent identity theft," Rosen said. That's because if your preparer has your driver's license or other photo identification on file, tax officials can request it to verify that you are who you say you are - and that any fraudulent tax returns filed under your name are actually bogus.

When Using Paper Tax Documents

Most Americans file taxes online these days, but that doesn't mean they don't have hard copies containing important information. Remember to take precautions with any sensitive paperwork.

Don't Carry Your Social Security Card

Every taxpayer has a Social Security card, but nobody needs to carry it around. If your card gets lost and falls into the wrong hands, it could enable a thief to steal your identity and file a tax return in your name, or profit financially in other ways, such as opening credit accounts in your name.

Use a Shredder

Sift through all your mail, bank statements and other financial information, then shred all documents that include your Social Security number, financial account numbers and other sensitive information. If there are documents you need to keep, maintain them in a safe, locked place.

Promptly Respond to Mail from the IRS

If you receive a letter from the IRS, always respond promptly. If there is an issue with your return, it's best to get it resolved quickly rather than allowing time for a potential identity thief to claim a refund in your name.

Never Respond to Emails or Phone Calls from the IRS

Remember, the IRS will never contact you via email or a phone call, said Gail Rosen, an accountant based in Martinsville, N.J.

“Do not respond to anyone who calls or emails you saying they are from the IRS," she said.

When You Think You're a Victim of Tax Refund Fraud

If you receive a letter from the IRS about filings you don't recognize, or if you attempt to submit your tax return and are notified that your Social Security number is associated with a return that has already been filed, you may be a victim of tax return fraud. Take action quickly.

Call All Taxing Authorities

That includes the IRS and the tax offices for any state in which you file taxes, Albrecht said. Let them know that you think an identity theft may have occurred and ask how they can help prevent damages.

File an Identity Theft Affidavit with the IRS

Use IRS Form 14039. Filing this form will alert the IRS to issue an identity protection PIN for you. This six-digit number will be required with any return using your Social Security number to prevent false returns from getting through the system.

File a Report with Your Local Police Department

A fraudulent tax return is not just a tax issue; it's a crime, so it should be reported to police. Your police report will provide a legal record and the police should be able to help you correct any damages.

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This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.

City National, as a matter of policy, does not give tax, accounting, regulatory or legal advice. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations and readers should seek professional advice.

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