Tax Fraud: How It Could Affect Your Tax Return

Kyle Brice
Greater Nevada Credit Union

When I hear the term tax fraud I always think of illustrious criminal Al Capone and his eventual downfall caused by tax evasion. While Capone’s crime involved trying to avoid filing a tax return, modern day criminals are trying to do just the opposite. These fraudsters are filing a multitude of tax returns claiming false refund amounts. How does a criminal filing a false tax claim affects you? They might be doing it with your name.

For the second year in a row identity theft is at the top of the IRS’ list of the Dirty Dozen Tax Scams. While most people probably think of tax scams in terms of offshore accounts or laundering money (thank you "Breaking Bad" for teaching me what that actually means), people don’t realize there is another kind of tax scam costing them their tax refund and costing the government billions of dollars. Potentially worst of all, this crime can be committed by someone with a sixth-grade education.

Many of the ways criminals can steal your identity were covered in our debit fraud blog, but as a review:

  • Old-fashioned wallet theft
  • Credit Card Skimming
  • Major Security Breaches
  • Phishing Scams
  • Online Shopping

In addition to these, there are a few tax-fraud-specific ways crooks steal your identity. One common method is to simply snatch your W-2 out of the mail. If your mail is delivered during the day while you’re at work, it’s a perfect time for a criminal to rifle through your mailbox. Unlike a stolen wallet, your W-2 has all your personal information and everything a fraudster needs to file a fake tax return. Many companies are offering digital W-2s to avoid this issue, but if yours doesn’t and you believe your W-2 has been stolen contact the IRS Identity Protection Specialized Unit, toll-free at 1-800-908-4490.

Tax scammers also use phishing, emails and phone calls, to gain access to your personal information. When the information is being gathered for the purpose of committing tax fraud, the call or email may appear to come from the IRS. For instance you may receive a phone call purportedly from the IRS claiming you owe back taxes, that you missed a huge refund, or that you are involved in some sort of tax crime. Often these callers will be very persuasive and may create a false sense of urgency by threatening prosecution or arrest. If you believe you have been contacted by a scammer impersonating the IRS, you can report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1.800.366.4484.

This same technique is can be applied to emails, text messages, and even social media.  The IRS knows about these scams and recently issued a statement saying, “the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.”

In 2012 the treasury lost about $5 billion from about 1.2 million fraudulent tax refunds. In 2013 that number went up to 1.63 million fraudulent tax refunds. In an effort to curb 2014 numbers, IRS investigations jumped 66% in the past year, and they have adopted elaborate electronic filters to screen phony returns.

Even with these new precautions, the easiest way to protect your identity during tax season is vigilance. Make sure you’re keeping your personal information secure, double check the authenticity of phone calls and emails, and, most importantly, if you believe you have been a victim of fraud, act fast. The sooner you bring the problem to the attention of appropriate authorities, the sooner the problem can be fixed or even prevented.

indentity theft graph

Image from the Boston Globe

03/21/2014