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How to Prevent Tax-Related Identity Theft

Today is tax day, which means that Americans will soon be receiving their tax refunds, if they haven’t already. Tax refunds are a common reason for fraudsters to commit tax-related identity theft — here are some tips to follow to protect yourself.

What is Tax Refund Fraud?

Tax refund fraud is a type of tax-related identity theft, and involves criminals using stolen personal information (including Social Security numbers) to file forged tax returns in your name, and then pocket tax refunds themselves. Hundreds of thousands of taxpayers are victimized by tax refund identity theft each year, and many are not aware until they attempt to file their own tax return.

Read More: How to Detect Financial Fraud

How to Prevent Tax Refund Fraud & Tax-Related Identity Theft

Recently, the IRS started a new program in which they issue a special identity protection PIN (or IP PIN) to some taxpayers who have been victimized by tax refund fraud in the past, or to taxpayers that voluntarily join the program. This six-digit code must be entered when a tax return is filed electronically to provide an extra layer of identity theft protection.

Despite these efforts, the risk of tax refund fraud is still very real. One of the best ways to protect yourself is to file your tax return early in tax season since it reduces the window of opportunity for identity thieves to file a fake return in your place. If filing early is not an option for you, there are several other actions you can take to help protect yourself:

1. Monitor Your Tax Account at

You can keep an eye on your federal income tax account via an online tool the IRS has created. By monitoring your account regularly during the tax-filing season, you can spot any suspicious activity and take action quickly to limit the damage from fraudulent tax returns. Furthermore, if you register for this service you will make it more difficult for fraudsters which often try to sign-up for your IRS online account themselves. Given they may already have personal information, they often use this to steal even more of your information from the Internal Revenue Service such as past returns.

2. Monitor Your Financial Institutions & Credit Bureaus

Put the odds on your side with frequent monitoring of your accounts and credit. Use the latest technologies for this such as Personal Capital’s financial dashboard or one of the many free credit monitoring apps available today. Pick something that is convenient so that you will be able to stay on top of identity thieves.

Read More: Detect Financial Fraud Using Personal Capital

3. Keep Healthy Cybersecurity Practices

This is especially critical if you file your tax return electronically. Unsecured PCs are a prime source for the theft of sensitive personal information by data thieves. Key things you will want to make sure you cover are:

  • Diligently applying all the software updates (e.g. those pesky things you ignore because they force you to reboot!).
  • Utilize reputable anti-virus software.
  • Adopt safe password practices, use a password manager tool to have unique passwords on all of your accounts, and keep your password manager safe.

Read More: Protecting Yourself From Data Breeches

4. Don’t Be Fooled By Tax Scams Like Phishing Emails or Phony Calls

These are another way criminals steal personal information. If you receive any emails that look even remotely suspicious, don’t click on any links or open any attachments — just delete them. And if you get a phone call from a supposed IRS employee asking for personal information, just hang up. Some examples include (but aren’t limited to):

  • Fake employer W-2 requests – emails pretending to be HR or payroll requesting you send your W-2.
  • Fake employee W-2 requests – the opposite of the above, this targets HR or payroll teams and is a tax scam for which the IRS has issued repeated warnings.
  • Fake CPA phishing – requests that you email sensitive tax documents, pretending to be your CPA or a relative’s.
  • Calls from “the IRS,” issuing a warrant for your arrest.
  • Mail theft – fraudsters go around open mailboxes and steal your letters in hopes of catching a W-2.
  • And more…

If You Are a Victim of Tax-Related Identity Theft…

If you are a victim of identity theft, you may receive a notice from the IRS that more than one tax return has been filed with your Social Security number. Or, the notice may state that you received compensation from an unknown employer.

In this case, you should contact the IRS Identity Protection Specialized Unit right away by calling 800-908-4490. Next, you will complete an Identity Theft Affidavit using Form 14309 and send this to the IRS, along with proof of your identity. Be sure to document all of your conversations and written correspondence with the IRS and keep copies of everything.

Additionally, you should also consider filing a local police report and putting a credit freeze (not a lock or alert!) on your credit file. Keep in mind that credit bureaus will usually have to provide this to you for free with a police report. The IRS emphasizes that you must still file your return and pay any taxes that are due on time, even if you’re a victim of tax refund fraud.

Our Take

If you are victimized by tax refund fraud, you may experience long delays in receiving a tax refund if you are due one. Furthermore, because tax fraud may result in a large portion of your confidential identification information, this can lead to further identity theft activities. So now is the time to take proactive steps to help prevent this type of fraud from happening to you.

Personal Capital’s free financial software allows you to easily manage your entire financial life in one secure place. Get started and monitor your accounts now.

This blog is for informational purposes only; we are not in the business of providing tax or legal advice and we generally recommend seeking the advice and counsel of a tax professional before taking any action that may cause a material taxable event.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Maxime Rousseau is Personal Capital's Chief Information Security Officer. He is a well-rounded and seasoned cybersecurity professional with over 15 years of experience helping technology, financial services and other organizations building and improving their cybersecurity programs as part of PwC's Advisory practice. Maxime also holds a CISSP certification and is active in the information security community.
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