Why Taxpayer Fraud Happens

Tax identity fraud typically occurs when taxpayers do not have secure financial information. However, this may not be the only cause. Knowing why tax identity fraud happens can help you take steps to avoid it.

You should always protect your Social Security number and/or tax identification number with the utmost care. Keep a very close eye on paperwork that may contain your personal identification information and avoid sharing this information more than absolutely necessary. In addition, try not to carry Social Security cards in your purse or wallet, which can be easy targets for thieves.

Scams That Attempt to Obtain Your Information

Thieves have begun contacting victims directly in an attempt to obtain their Social Security number or tax identification number. They often do this via phone or email. Sometimes posing as a federal or local government employee claiming that there is a problem with their tax return. Please keep in mind that the IRS will never call or email an individual and ask them to supply personal information. All outbound communications are initially made through the U.S. mail.

Other scams can include thieves posing as loan officers or credit card company employees who offer you a good deal on a personal loan or credit card. Unless you have initiated the call to a verified phone number, never give out your personal information over the phone.

Security breaches at credit card companies, businesses and financial institutions can occur. If this happens your personal information may become compromised. As with many instances of identity theft, you may not become aware that your information has been stolen until it is too late and someone fraudulently uses it.

Unfortunately, there is little that you can do to prevent this type of security breach. However, if this does happen to a company you may be associated with, it is important to know what information has been compromised and how that might affect you.

Types of Tax Identity Fraud

There are two general types of tax identity fraud. Both are considered federal crimes. If either of the following happens to you, it is important to work with the IRS to help ensure that this situation does not reoccur and that any tax bill is adjusted accordingly.

Refund Fraud - This type of fraud occurs when someone else uses your personal identification information to file a fraudulent tax return. This is done in an effort to collect a tax refund. This is typically done early in the tax season (January/February), before the actual taxpayer has had a chance to file their taxes.

The taxpayer and IRS usually becomes aware of this type of fraud when more than one return is filed with the same Social Security number or tax identification number and it is flagged as a “duplicate” filing.

Employment Fraud - The other type of tax identity fraud occurs when someone else uses your Social Security number or tax identification number on her or his employment documents (such as a W-4). When an identity thief uses your information when filling out this kind of paperwork, it will make it look like you were employed by a business or organization that you did not actually work for.

This situation raises a red flag with the IRS because it appears as if you have earned additional income compared to what you have reported on your tax return. Then, the IRS has to determine which income actually belongs to the taxpayer and which income belongs to the identity thief.

If you ever receive notification of unreported extra income or that a duplicate return has been filed, you should contact the IRS immediately.