FROM THE BLOG

This time of year, as tax day approaches, many of us are preoccupied with meeting with our tax preparers, or digging out our passwords to a do-it-yourself tax website. But while our thoughts revolve around simply filing our taxes, it’s prudent to be aware of a growing financial risk: tax-related identity theft.

What is Tax-Related Identity Theft?

The IRS defines tax-related identity theft as someone using your personal information to file a tax return claiming a fraudulent refund. It first surfaced around 2005 and has become a major concern of the IRS. Originally, the crime was perpetrated by a thief stealing someone’s Social Security number in a one-off incident. Today it has become more organized, with schemes designed to commit widespread fraud.

An Increasingly Common Fraud

In 2023, the IRS identified more than 1 million filings by early March that were potentially filed by identity thieves, according to a Treasury report. The refunds associated with these returns totaled roughly $6.3 billion. By that same date, the IRS had an increase in confirmed tax fraud cases by approximately 30%.

As the volume and complexity of these crimes have increased, the federal government has responded with increased vigilance. Last year, the IRS increased the number of red flags it reviews to identify such crimes from 168 in 2022 to 236 in 2023. This increased scrutiny can delay your tax refund by some weeks if your return is flagged for potential fraud, as you’ll need to take additional steps to validate your identity with the IRS.

So how will you know if someone has used your Social Security number fraudulently? If a potential problem is flagged, you’ll receive a letter from the IRS, which will have instructions on how to resolve the matter. Others may find out when a return is submitted, only to be told that a return using their taxpayer identification number has already been filed.

How to Protect Yourself

As with all forms of identity theft, there are some simple and effective steps you can take to mitigate your risk. First, keep your tax records (and all personally identifiable information) in a secure place. When the records are no longer needed, shred them rather than throw them away. Secondly, be sure to use channels that employ multi-factor authentication (“MFA”). This tool requires a second credential to log into your account; and is widely employed by tax preparers, banks, and other financial institutions. Finally, never give your personal information to anyone who contacts you on behalf of the IRS. Many common schemes rely upon tricking you into giving your personal information by creating a feeling of urgency. If you need to verify a communication from the IRS, you can contact them at 1-800-829-1040.

As always, several resources at identitytheft.gov can help you ensure you are protected.

Take care,

Robert Coulter
Chief Compliance Officer

Posted by Prospera Financial