Tax fraud: Are you and your kids at risk?

It’s tax season. As you can imagine, we get a lot of questions this time of year, and this year, many of them have been around how people can protect themselves from tax fraud.

Let’s start with the IRS. Have you ever received a phone call or email “from” the IRS asking you to verify your personal information or demanding that you pay a tax bill immediately? If so, it’s a scam. The IRS doesn’t use the phone, email, or social media to contact you. It sticks to snail mail. To some this might seem obvious, but just last year the Chicago Better Business Bureau ranked telephone tax scams as the number-one scam in 2015.

But tax fraud doesn’t just happen because people fall victim to phone scams; it often comes down to identity theft. When someone steals your identity, they have the opportunity to file a fraudulent tax return. In fact, most people don’t even realize that they’ve been a victim of identity theft until they file their taxes and the IRS notifies them that someone has already filed in their name.

The IRS doesn’t use the phone, email, or social media to contact you. It sticks to snail mail. 

Pretty scary, huh? Well, think about this: what about children and the elderly who don’t file tax returns or monitor their credit? They’re easy prey, and fraud can go on for years before it’s detected.

So how do you protect yourself? Consider the following:

• Protect your computer. Use security software, and make sure it updates automatically. Encrypt sensitive data.
• Know who you’re dealing with when you share sensitive data online.
• Use strong passwords, and change them often.
• Don’t open an attachment in email unless you know who sent it and what it is.

Also, be proactive about detecting fraud. Run a credit report three to four times a year to see if unknown credit inquiries or accounts have been opened in your name.

If it does appear that you’ve been a victim of tax fraud, contact your CPA or the IRS immediately. The IRS will issue a fraud alert and freeze your account to prevent the scammer from receiving your refund. You should also fill out form 1409, an identity theft affidavit that requires you to attach a copy of your passport or driver’s license to prove your identity. The IRS will then issue you a pin number you can use in place of your compromised social security number. This should cut the scammer’s access to your account.

Tax fraud and identify theft should be taken very seriously. If you fall victim, it can take months or even years to sort things out.

What about you? Do you know anyone who’s been a victim of tax identify theft? And has “the IRS” ever called you for information?