Tax Identity Theft and Fraud Prevention: Safeguarding Your Finances

by | Sep 14, 2023

When most people think of tax-related stress, they think about missing deadlines, incurring penalties, or being audited by the IRS.  But there’s another stressor that taxpayers are subject to all-too-frequently: tax-related identity theft. In this scheme, fraudsters use stolen information to pose as a taxpayer and file fake tax returns and claim the resulting refunds. claim refunds.  

Tax-related identity theft first surfaced in 2004-2005 and has grown every year since, with the IRS filing more than 1 million tax returns for identity fraud in 2023. 

There are a number of things you can do to protect yourself from tax identity theft – most of which apply to identity protection in-general. Here are some tips: 

  • Safeguard your personal information. This includes your Social Security number (SSN), tax documents, and other sensitive information. Store physical copies in a safe place and use strong passwords or encryption to protect digital records. 
  • Be cautious online. Don’t click on suspicious links or share personal details through unsecured websites. Be wary of phishing emails and fake websites that aim to steal your personal information. 
  • Use secure Wi-Fi networks. When filing taxes online, make sure you’re connected to a secure Wi-Fi network. Avoid using public Wi-Fi networks that may expose your information to hackers. 
  • Shred unnecessary documents. When you’re done with old tax documents, receipts, and financial statements, shred them or securely destroy them. This will reduce the risk of dumpster diving or theft of sensitive information. 
  • Sign up for an IRS Identity Protection PIN (IP PIN). An IP PIN is a six-digit number that you can use to verify your identity when filing your taxes. You can sign up for an IP PIN online at the IRS website. 
  • Monitor your credit reports. You can get a free copy of your credit report from each of the three major credit bureaus once a year at AnnualCreditReport.com. Review your credit reports carefully for any suspicious activity. 
  • Place a fraud alert or credit freeze on your credit reports. A fraud alert tells creditors to take extra steps to verify your identity before opening a new account in your name. A credit freeze prevents creditors from accessing your credit report without your permission. You can place a fraud alert or credit freeze online at each of the three major credit bureaus’ websites. 

If you suspect or become a victim of tax identity theft, it’s important to take these steps immediately: 

  • Contact the IRS. Visit the IRS website or call the Identity Theft Protection Specialized Unit at 1-800-908-4490 for guidance on next steps. 
  • File an Identity Theft Affidavit. Complete IRS Form 14039, Identity Theft Affidavit, to alert the IRS of the fraud and initiate an investigation. 
  • Place a fraud alert or credit freeze on your credit reports. This will help to protect your accounts from further unauthorized access. 
  • Report the fraud to your state’s attorney general. They may be able to take legal action against the identity thieves. 
  • Place a security freeze on your credit reports. A security freeze is similar to a credit freeze, but it’s permanent. This means that you will need to lift the freeze each time you want to apply for a new loan or credit card. 
  • Monitor your credit reports for at least two years. This will help you to detect any new fraudulent activity. 

By taking these steps, you can minimize the risk of financial loss and protect your tax-related information. Remember, education and awareness are key to combating tax identity fraud. Stay informed, be cautious, and consult with tax professionals or law enforcement if you notice any suspicious activity. Need more help? Talk to our experts today.