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How to Avoid Tax Return Identity Theft

By the end of this article, you will have practical tools to help combat identity theft on your tax return. However, the first step in solving a problem is awareness of the problem!

Do you remember the first time you received an email from a "Nigerian Prince" informing you that you won the lottery / got an inheritance / landed a big business deal? All you had to do was reply to the email with your bank info and other personal details and victoriously wait until the red numbers in your bank account swiftly turned green. Or not.

I received that email 20 years ago at the age of 19 and, luckily, I was smart enough to ignore the message. Not everyone was as lucky.

Similar scams still exist today simply because there are people who continue to fall for them. However, learning about the existing scams is not quite sufficient. New scams continue to fill our world.

Regarding tax returns, scammers work tirelessly trying to snatch the identity of taxpayers so that they can steal refunds and gain access to additional accounts and conduct malicious activity.

These scammers will try everything from calling and emailing you while pretending to be the IRS, to looking through your physical mailbox trying to identify a refund check! They might even come to your door claiming to be an official from the tax authorities.

We are better off using our common sense and apply basic rules of suspicion to all aspects of our lives. Examples include:

  • If it seems too good to be true, it probably is.

  • Better be safe than sorry.

  • When in doubt, do without it.

  • If you don't know, ask.

  • If you are not expecting anyone, don't automatically fling open the door.

Furthermore, it is crucial to understand a few things about the IRS. They, too, take considerable action to prevent identity theft. Although these measures can be quite annoying, they are ultimately there for your protection:

  • The IRS will never initiate contact with a taxpayer via email or phone. They will send you an official letter in the mail.

  • The IRS uses automatic triggers to detect identity theft suspicion, such as a change in address on your tax return.

  • If the IRS suspects that there might be identity theft, they will send you a letter saying they are holding on to your refund until they can verify that you are you.

  • There are two primary ways the IRS will identify you.

    • The quickest way is calling a specific IRS number listed on the notice and correctly answering questions that the IRS already has in their system from the tax returns that you filed.

    • If you fail to answer all the questions correctly, you will have to mail them certain identification documents, along with the notice, before they agree to release your refund.

Some things are not in our control; they will happen no matter what we do. However, we can be proactive by doing our part and have a fighting chance of avoiding hassle. Here are a few additional tips you can take home with you:

  • File early in the tax season. If an imposter tries to file a fake tax return in your name after you already filed, the second return will automatically get rejected. The only way to override an accepted return is with an amended return that must include a copy of the originally filed return.

  • As mentioned above, address changes on tax returns are considered suspicious. If you have to change your address, try to file Form 8822 (Form 8822-b for businesses) at least a few months before filing your tax return, so that your tax return will not be the first place the IRS sees your new address. This form is straightforward, and most people file it independently without the assistance of an accountant.

  • Get an Identity Protection PIN from the IRS. This six-digit code that you enter on your tax return aims to prevent the misuse of your social security number on fraudulent tax returns. If you are a victim of identity fraud, the IRS will send you the code upon resolving the case. Otherwise, you can check out the IRS website to see if you are eligible to apply for this PIN online.

Bottom line: Always be on alert for potential scams! If you receive a notice in the mail and you are unsure if it is a scam or not, show it to your trusted accountant or tax advisor. They undoubtedly have seen many different types of tax scams and can help you determine the legitimacy of the notice you received, as well as the proper action to take.

Note: A version of this article was published by in October 2020

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