E-File Tax Identity Fraud: How to Protect Yourself from the Threat

The convenience of e-filing income tax returns has attracted an alarming number of fraudulent activities. Tax identity theft is a rapidly growing concern in the financial world, targeting millions of unsuspecting individuals each year. As e-filing becomes more prevalent – with over 92% of individual tax returns now submitted electronically – it has emerged as a lucrative opportunity for cybercriminals to exploit personal information and claim fraudulent refunds.

In this comprehensive guide, we will uncover the intricacies behind e-file tax identity theft fraud, how these attacks occur, and the measures you can take to protect yourself and your finances. We will also explore what steps to take in case you are a victim of such fraudulent activities.

Why is E-filing a Fraud Target?

E-filing offers several benefits for both taxpayers and the IRS:

1. Quicker returns: Electronic submission of tax returns eliminates the time-consuming process of printing, signing, and mailing paper forms.
2. Error detection: The IRS can detect discrepancies in electronic data more efficiently than with paper forms.
3. Streamlined storage: E-filed documents require less physical space for storage compared to their paper counterparts.
4. Improved audit pull: Electronic data is easily accessible, making the audit process smoother.

Despite these advantages, e-filing’s popularity also makes it a prime target for identity thieves and cybercriminals. Here are some reasons why:

1. No physical traceability: E-filed tax returns have no tangible presence that could be used to track down the perpetrator – like an envelope, fingerprints, or signatures.
2. Direct deposit exploitation: Cybercriminals can use prepaid debit cards from grocery or drugstores with valid routing and account numbers. These appear indistinguishable from a legitimate direct deposit, making them almost untraceable when paid for in cash.
3. Speedy returns: With the ease of direct deposits, fraudsters have the opportunity to claim tax refunds before the rightful owner files, allowing them to divert those funds into their accounts.

How to Protect Yourself from Tax Identity Fraud

While it is impossible to ensure 100% protection against tax identity theft fraud, following a multi-pronged approach can significantly reduce your risk of falling victim:

1. Secure personal information

Be vigilant about who has access to your Social Security number (SSN) and other sensitive data. Regularly check your credit report for any suspicious activities or inquiries related to your SSN. You are entitled to one free copy of your credit report annually from each of the three major credit bureaus (Equifax, Experian, and TransUnion).

2. Employ strong passwords and two-factor authentication

Use complex, unique passwords for all financial accounts, including online tax filing portals. Enable two-factor authentication when available to add an extra layer of security.

3. Monitor email correspondence

Scrutinize the sender’s email address in case you receive any communications from the IRS. The agency will never initiate contact via unsolicited emails. If you have doubts about the validity, call the IRS directly at 1-800-829-1040 to confirm the correspondence.

4. Beware of phishing scams

Phishing is a technique used by cybercriminals to steal sensitive information through fraudulent emails or websites. Stay alert for any requests asking for personal data, such as usernames, passwords, Social Security numbers, or financial information. The IRS will never solicit this information via email.

5. File your tax return promptly

Filing early prevents potential identity thieves from submitting a fraudulent return using your SSN and claiming the refund before you do.

6. Verify the legitimacy of tax preparation software or services

Thoroughly research the credentials of any online tax filing platforms or paid preparers to avoid falling prey to scams. Look for providers with verifiable qualifications, a reputation for security, and positive reviews from past clients.

7. Keep electronic records secure

Maintain a high level of cybersecurity for your digital devices, including antivirus software and firewalls, as well as strong password protection on all tax-related data.

Responding to Tax Identity Theft Fraud

If you suspect that you are or may become a victim of tax identity theft fraud, take the following steps:

1. Contact the IRS immediately at 1-800-908-4490. They can help you determine if your return has been affected and guide you through the necessary measures to resolve the issue.
2. File a complaint with the Federal Trade Commission (FTC) via IdentityTheft.gov, which will provide personalized assistance in recovering from this type of fraud.
3. Report the incident to local law enforcement and file a police report. This document can help you support your case when dealing with financial institutions or credit bureaus.
4. Reach out to your financial institution or credit card company to alert them of any suspicious activity on your accounts. They may be able to freeze or monitor transactions until the situation is resolved.
5. Notify your employer if you suspect that your W-2 has been compromised, as it can aid in identifying potential identity theft.

Conclusion

The rising threat of tax identity fraud underscores the importance of vigilance and proactive steps to safeguard personal financial information. By following best practices for digital security, monitoring accounts, and promptly addressing any suspicious activity, you can significantly reduce your risk of falling victim to these cybercrimes.

Stay informed, stay alert, and take charge of your financial security to protect yourself against the growing threat of tax identity fraud.