Identity Theft, and Tax Refund Scams

TrainMyParent.com
Feb 1
3 min read

A cyber criminal at work — He's working hard for your money!

Identity theft for the purpose of filing false tax returns is a long-standing and ever-evolving fraud scam that steals refunds, harms taxpayers, and clogs the tax system. Criminals use stolen Social Security numbers and other personal data to file returns in someone else’s name, claim refundable credits, and direct refunds into accounts they control. The results are financial loss for governments, long headaches for victims, and serious criminal penalties for perpetrators.

How the Scheme Typically Works:

Thieves collect personal data (name, SSN, date of birth, filing status) through data breaches, phishing, illegal lists on the dark web, or by buying scraped public records.
The criminal's goal is to file the taxes and get the tax refund before the real taxpayer files. Using the victim's personal data, early in the season they prepare and submit a tax return on behalf of the victim, to claim large refundable credits, such as the Earned Income Tax Credit, or overstate the amount of tax dollars that were withheld.
The criminal arranges the refund to go to their bank account or prepaid debit card that they control. If the fraudulent return is accepted and the refund issued, the thief pockets the money. If the IRS flags the return, the real taxpayer is often pulled into a long resolution process.

What Victims Typically Experience:

If someone files a return in your name, you may discover it because:

Your e-file is rejected with a message that a return already exists for your SSN.
You receive IRS notices about income you didn’t earn or refunds you didn’t request.
You see unfamiliar accounts/activities tied to your identity.

Victims often face lengthy delays restoring accounts and receiving legitimate refunds. The IRS National Taxpayer Advocate Service and other watchdogs have documented long waits for resolution in many cases.

Immediate Steps if You Think You Are a Victim:

Do not confront the suspected fraudster. Focus on documenting and reporting.
Report to the IRS: If you suspect tax-related identity theft, complete IRS Form 14039, Identity Theft Affidavit, following the IRS guidance for submission. The IRS has a central Identity Theft resource with steps for victims.
Report to the FTC: Use the Federal Trade Commission's IdentityTheft.gov website to report the crime and get a recovery plan. The FTC also maintains the Consumer Sentinel database used by law enforcement
Report to the FBI or the Internet Crime Complaint Center: i\If you believe the fraud is part of a broader criminal scheme, or involves significant loss, you should report to both agencies. The IC3 complaint form gathers intelligence to assist in federal investigations.
Follow IRS instructions for filing a return: In many cases the IRS asks victims to file a paper return and attach Form 14039 so the agency can mark the account and begin an investigation.

Prevention: How to Reduce Your Risk

Guard your SSN: Do not carry your Social Security card with you. Keep it in a secure place, such as a safe or vault. Only share SSNs when absolutely necessary. Never send your Social Security Number via email (which is not very secure). Think of email as a postcard...anyone along the email's traveling path can read its contents.
Use strong access controls: make sure you have unique, strong passwords and multifactor authentication on financial and tax-related accounts.
File early: Although we taxpayers tend to put off filing until the last minute, filing your legitimate return as early as possible reduces the window in which a criminal can beat you to a refund.
Consider an IRS Identity Protection PIN (IP PIN): If you have been the victim of identity theft, the IRS can issue you a Personal Identification Number (PIN), or a numerical code that the IRS uses to verify your identity and prevent fraudulent e-filings under your SSN. You will need that IP PIN when you file in subsequent years.
Monitor accounts and credit reports: Set up alerts, check tax transcripts if you suspect problems, and review free annual credit reports. Agencies also recommend freezing credit if you see suspicious activity.

a locked computer in front of other lock icons — Protect your personal information!

Tax-refund identity theft is disruptive and stressful, and are one of the many reasons why you should protect your personal information, especially your social security number. If you are the victim of identity theft and the tax return scheme, at least there are resources available to you to try to resolve the issue as quickly as possible.

Learn how you can protect yourself or your family by enrolling in the Complete Internet Security Basics and Phishing Awareness Course for Parents on TrainMyParent.com

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