In the vast world of cybercrime, tax identity theft is easy to overlook. It may not get the attention of credit fraud or data breaches, but in 2018 almost 39,000 taxpayers fell prey to scammers.

With tax season just getting underway, we interviewed Greg Railsback, CPA, independent trustee to many Vista clients, to learn more.

Q: What is tax identity fraud?

A: Tax identity theft happens when scammers use personal information—name, birthdate, Social Security number—to file a tax return in hopes of receiving another person’s tax refund.

Q: How do scammers get my information?

A: Scammers are always finding new ways to get information. Currently, they gather data through email phishing and phone calls, posing as a taxpayer advocate or the IRS. Scammers also target tax preparers by attempting to hack into their servers—a treasure trove of personal information. They might also contact workplace human resources or payroll departments to try to gain personal information.

Q: What are signs that I am a victim of tax fraud?

A: Receiving a phone call from the IRS does not indicate you are a victim. The IRS will never call—they send messages through U.S. mail. However, if you receive a letter from the IRS about a suspicious tax return and you haven’t filed yet, you’re likely compromised. The same is true if you attempt to file a tax return and it’s rejected. This means someone else has filed one in your name.

Q: Help, I’m a victim! Now what?

A: Unfortunately, handling tax fraud is not a “one and done” process. The good news is that the IRS has implemented measures to combat identity theft and tax return fraud.

For example, if you are a victim of tax fraud and your return is rejected, the IRS will typically hold both returns that were submitted. They’ll then request your driver’s license information and W2 to verify your identity. The tax return submitted with the requested documentation will be accepted.

Going forward, the IRS will also provide you with a new identity theft PIN every year. You’ll need to use this when filing.

Once a fraudster has used your personal information, we recommend you also follow these steps to protect your identity and avoid potential credit scams.

Q: What can I do to prevent tax identity fraud?

A: With the uptick in scammers hacking into tax professionals’ networks, you want to be sure your accountant has proper security measures in place:

  • Client data should not be saved on local computer hard drives
  • Programs should be hosted in a secure environment by a primary software vendor; access to data servers should be highly restricted
  • Multi-factor authentication should be used for all programs
  • Users should be automatically logged out after 15 minutes of inactivity
  • Client source documents provided in physical form should be locked in a secure location until returned to the client
  • Emails containing SSN, EIN, account numbers, or other personal information should be automatically encrypted

Final Thoughts

When it comes to preventing tax fraud, an ounce of prevention is worth a pound of cure. Stay vigilant and be sure you are working with a reputable tax professional.

If you are unsure whether you’ve been a victim of tax fraud or if you have additional questions, please reach out to Vista. We are happy to help!