Tax refund fraud affects hundreds of thousands, if not millions, of U.S. citizens annually. Victims usually first learn of the crime after having their returns rejected because scammers beat them to it. Even those who are not required to file a return can be victims of refund fraud, as can those who are not actually due a refund from the IRS.
According to the IRS, consumer complaints over tax refund fraud have been declining steadily over the years as the IRS and states enact more stringent measures for screening potentially fraudulent applications.
If you file your taxes electronically and the return is rejected, and if you were the victim of identity theft (e.g., if your Social Security number and other information was leaked in the Equifax breach last year), you should submit an Identity Theft Affidavit (Form 14039). The IRS advises that if you suspect you are a victim of identity theft, continue to pay your taxes and file your tax return, even if you must do so by paper.
If the IRS believes you were likely the victim of tax refund fraud in the previous tax year they will likely send you a special filing PIN that needs to be entered along with this year’s return before the filing will be accepted by the IRS electronically. This year marks the third out of the last five that I’ve received one of these PINs from the IRS.
Of course, filing your taxes early to beat the fraudsters requires one to have all of the tax forms needed to do so. As a sole proprietor, this is a great challenge because many companies take their sweet time sending out 1099 forms and such (even though they’re required to do so by Jan. 31).
A great many companies are now turning to online services to deliver tax forms to contractors, employees and others. For example, I have received several notices via email regarding the availability of 1099 forms online; most say they are sending the forms in snail mail, but that if I need them sooner I can get them online if I just create an account or enter some personal information at some third-party site.
Having seen how so many of these sites handle personal information, I’m not terribly interested in volunteering more of it. According to Bankrate, taxpayers can still file their returns even if they don’t yet have all of their 1099s — as long as you have the correct information about how much you earned.
“Unlike a W-2, you generally don’t have to attach 1099s to your tax return,” Bankrate explains. “They are just issued so you’ll know how much to report, with copies going to the IRS so return processors can double-check your entries. As long as you have the correct information, you can put it on your tax form without having the statement in hand.”
In past tax years, identity thieves have used data gleaned from a variety of third-party and government Web sites to file phony tax refund requests — including from the IRS itself! One of their perennial favorites was the IRS’s Get Transcript service, which previously had fairly lax authentication measures.
After hundreds of thousands of taxpayers had their tax data accessed through the online tool, the IRS took it offline for a bit and then brought it back online but requiring a host of new data elements.
But many of those elements — such as your personal account number from a credit card, mortgage, home equity loan, home equity line of credit or car loan — can be gathered from multiple locations online with almost no authentication. For example, earlier this week I heard from Jason, a longtime reader who was shocked at how little information was required to get a copy of his 2017 mortgage interest statement from his former lender.
“I called our old mortgage company (Chase) to retrieve our 1098 from an old loan today,” Jason wrote. “After I provided the last four digits of the social security # to their IVR [interactive voice response system] that was enough to validate me to request a fax of the tax form, which would have included sensitive information. I asked for a supervisor who explained to me that it was sufficient to check the SSN last 4 + the caller id phone number to validate the account.”
If you’ve taken my advice and placed a security freeze on your credit file with the major credit bureaus, you don’t have to worry about thieves somehow bypassing the security on the IRS’s Get Transcript site. That’s because the IRS uses Experian to ask a series of knowledge-based authentication questions before an online account can even be created at the IRS’s site to access the transcript.
Now, anyone who reads this site regularly should know I’ve been highly critical of these KBA questions as a means of authentication. But the upshot here is that if you have a freeze in place at Experian (and I sincerely hope you do), Experian won’t even be able to ask those questions. Thus, thieves should not be able to create an account in your name at the IRS’s site (unless of course thieves manage to successfully request your freeze PIN from Experian’s site, in which case all bets are off).
While you’re getting your taxes in order this filing season, be on guard against fake emails or Web sites that may try to phish your personal or tax data. The IRS stresses that it will never initiate contact with taxpayers about a bill or refund. If you receive a phishing email that spoofs the IRS, consider forwarding it to firstname.lastname@example.org.
Finally, tax season also is when the phone-based tax scams kick into high gear, with fraudsters threatening taxpayers with arrest, deportation and other penalties if they don’t make an immediate payment over the phone. If you care for older parents or relatives, this may be a good time to remind them about these and other phone-based scams.