Every year during tax season, we receive an influx of calls about tax-related identity theft. This type of fraud can happen when a criminal uses your Social Security number to file a tax return in hopes of pocketing the refund. To stay safe, file your taxes as early as possible and consider signing up for an Identity Protection PIN from the IRS.
This year, the Internal Revenue Service (IRS) began accepting tax returns on January 23, officially kicking off tax season.
Unfortunately, every year during this time, millions of Americans discover they're victims of tax-related identity theft.
In fact, here at Allstate Identity Protection, tax fraud was the third-most reported fraud type in 2022.
We’re all about helping our members get proactive about combating fraud — and there’s actually a lot you can do to protect against this type of identity theft.
So, with the 2023 filing season upon us, we created this guide to staying safe from tax-related identity theft.
What’s the difference between tax fraud and tax identity theft?
There are different types of tax crimes, and they don’t all involve identity theft.
Tax evasion, for instance, is when someone intentionally fails to pay or underpays their taxes. This can be done through various methods, such as hiding income or lying about deductions.
But with tax-related identity theft, criminals target individual taxpayers directly. Also known as tax refund fraud or Stolen Identity Refund Fraud (SIRF), tax identity theft occurs when a thief uses stolen personal information to fraudulently file taxes in someone else’s name, intending to pocket their refund.
This can delay the delivery of legitimate tax refund checks to rightful recipients.
According to the Taxpayer Advocate Service, in 2022 alone, the IRS assessed fraud penalties totaling over $306 million.
Warning signs of tax identity theft
“In many tax identity theft cases, members find out that they are a victim when they file for their taxes and are subsequently declined,” says Brandon Young, Restoration Specialist at Allstate Identity Protection.
This is because if a fraudster has already used your SSN to file a phony tax return, the IRS won’t be able to accept your legitimate e-filing or paper file.
If you — or the tax professional you’re working with — go to file your taxes electronically and are denied, consider it a sign that you’re a victim of tax identity theft.
Other signs that you may be a victim of tax refund fraud:
IRS records don't accurately reflect your employment history or the wages you've earned
You receive a letter from the IRS about something out of the blue, like a notification that your online account has been deactivated or that you’ve been assigned an Employer Identification Number you didn’t request
The IRS notifies you about an additional tax or a refund offset that you weren't expecting and that doesn't add up
Six ways to protect yourself from tax refund fraud
One of the best ways to protect against tax-related identity theft is to safeguard your SSN. Store your Social Security card somewhere safe (never in your car, wallet, or purse), and think twice before sharing your number, even when you're asked for it.
Follow our checklist of tax season safety tips for additional peace of mind:
Sign up for an Identity Protection PIN (IP PIN). In 2021, the IRS made IP PINs available to all taxpayers who can verify their identity. “When a PIN, or personal identification number, is established with the IRS, it places an additional requirement on the upcoming tax filing,” explains Young. “It's a free tool, and it’s only good for one year from the date of issue, so it's designed to be a one-time use.” These six-digit codes function like a second password, so a thief couldn't submit a return on your behalf without it. Keep in mind that it should only be known by you and the IRS, so never share yours with anyone.
File your taxes early. A fraudster won’t be able to file taxes under your SSN if you’ve beaten them to it.
Choose a tax preparer carefully. Tax preparers handle your most personal information, so if you’re planning to work with one, it’s important to choose wisely. The IRS recommends checking their professional qualifications and history, and offers resources on how to do so.
Keep your tax records secure. Shred any paper tax documents you no longer need, as well as any other forms and files that include your SSN.
Protect your digital files. If you store your documents digitally, be sure the folders are protected with strong passwords, and stay up-to-date on security software updates.
Also, know that the IRS encourages taxpayers to file electronically. If you file a paper return, it can take much longer for signs of fraud to surface.
How does tax identity theft occur?
The IRS needs two key pieces of personal information to process tax filings: your Social Security number and date of birth. While there are lots of ways a scammer might get this information, here are three common tactics to look out for:
Fake job positions that ask for your SSN during the interview process
Phishing messages “from the IRS” or another government agency
Data breaches that leave your personal information exposed
Are children at risk of tax refund theft?
According to Young, cases where minors are fraudulently claimed are not uncommon.
If a scammer gets ahold of your child’s information, they could file a fraudulent return using your child as a dependent, in order to receive credits and deductions that they aren’t entitled to.
If you’re a parent or caregiver, we recommend you follow the same prevention tips to protect your children or older family members — especially keeping their Social Security number under lock and key.
Someone stole my tax refund check — now what?
If you suspect that you are a victim of tax-related identity theft, it’s important to take action immediately.
Once you learn that someone has filed taxes using your identity, here’s what to do next:
Physically mail your paper return to the IRS
Complete and send an Identity Theft Affidavit letting the IRS know you are a tax identity theft victim, and that your paper return is the valid one
Once the IRS receives and processes this form, the bureau will begin its investigation.
“The IRS will try to complete this process in about six months, but it could take longer depending on the complexity of the case,” says Patricia Krentz, Restoration Specialist at Allstate Identity Protection.
While you wait, there are a few things to keep in mind.
During this process, it’s important to respond promptly to any letter you receive from the IRS and take all subsequent steps they instruct. Here’s a quick guide from the IRS to help you verify that a letter is legit.
“The IRS will not call you during the process of the investigation,” Krentz notes. “All communication will be done via mail — and once their investigation is done, the bureau typically sends a letter confirming that the case has been resolved.”
This is important to keep in mind because scammers know that some people pay more attention to IRS communications during this time — making impersonation scams more likely to succeed. Next time, we'll cover impersonation scams more in-depth so keep an eye out for that.
Once your case has been resolved, the IRS should issue any refunds that were due.
If you’re a member, our identity specialists are here to guide you through this process. You’ll never need to face tax refund fraud — or any type of identity theft — alone.