Tax refund fraud

Tax Refund Fraud 2015: Five Ways to Avoid Getting Scammed

Tax refund fraudTax refund fraud 2015: Americans, in total, spend 6 billion hours a year doing their taxes. They do it because it's a requirement - but also because it's a lifeline. For 70% of Americans, the tax refund is the biggest paycheck they'll receive all year.

But tax refund fraud, which has tripled in the last three years, threatens to take that lifeline away now more than ever.

Currently, a little over $5 billion is lost every year to tax fraud, according to Government Accountability Office (GAO) estimates. From 2013 to 2014, the number of people who identified themselves as tax fraud victims jumped by 36%.

Already this year, 19 states' tax authorities reported high volumes of fraudulent returns.

In fact, the recent spike in fraud caused Intuit Inc. (Nasdaq: INTU) to suspend state e-filings Feb. 5. The company made the move to protect its vast customer base. One-third of all Americans use Intuit services to file tax returns - 29 million returns are filed each year with the company's do-it-yourself software TurboTax alone.

"Intuit and some states have seen an increase in suspicious filings and attempts by criminals to use stolen identity information to file fraudulent state tax returns and claim tax refunds," Intuit said.

On Feb. 7, Intuit unsuspended state e-filings after it beefed up TurboTax security with a multi-factor authentication system.

Still, it is shockingly easy for a criminal to perpetrate tax return fraud.

How Tax Refund Fraud Works

Tax refund fraud chart

A thief need only be armed with a date of birth and a social security number to steal your money.

The con man goes to an online tax site, types the numbers in, files a fake return, and collects a payment.

Authentic filers discover they've been scammed only after filing their true returns. The IRS notifies them that the agency has already paid out the refund.

Another scam happens when taxpayers go to unregulated preparers to file. These criminals tend to prey on taxpayers eligible for the earned income credit (EIC). The preparer changes the return after it's been filed, and taxpayers are unaware they've missed out on the credit.

A taxpayer can get the money back - but it takes a matter of months, or even years. That's tough on Americans who rely on the tax refund check.

Meanwhile, stolen credentials are cheaper and more plentiful than ever. Take a look at the screen-grab below of a well-known seller on the Dark Web forum Evolution Market. Here, hacked accounts can be bought for 0.0002 bitcoins (or roughly $0.04 each:


Tax refund fraud 2015You can reduce your risk of getting scammed. Taxpayers can take these steps to protect themselves from tax refund fraud in 2015...

Tax Refund Fraud 2015: Protect Yourself in 5 Steps

  1. Don't give out personal information via message or email - it's likely phishing. Phishing is one of the top two ways scammers obtain data to commit tax return fraud. Phishing scams trick people into giving up account data and other personal details. Phishers send official-looking emails or messages that ask for personal information like account usernames, passwords, or credit card details. They also may include links that, if clicked, send users to links infected with malware programmed to take personal data from your computer. Never share personal info with someone requesting it via message or email (and don't click the links). Legitimate agencies would never ask for your personal details in this format.
  1. Protect yourself from data breaches by frequently changing passwords on online accounts that hold sensitive information. Fraudsters get the personal information they use in tax return fraud by hacking into your online accounts. Use passwords with a mix between letters, caps, numbers, and symbols to make them tougher to crack. And avoid the temptation to re-use the same password on multiple sites. When a breach on one site exposes personal information, thieves will try the credentials at other sites.

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  1. File your taxes early, and file electronically. That way you can beat the scammers to the punch. It's also the fastest way to find out if you're a tax return fraud victim - once the IRS gets a return with your social security number, it will notify you of any duplicate filings.
  1. Be aware of your finances, including the deductions and credits you are eligible for. Keep your paperwork from previous years' filings to reference, and do research. Make sure if you're eligible for something like the EIC, you actually receive it.
  1. Frequently monitor your credit report. A crook armed with enough information to file a fraudulent tax return may also attempt to make fraudulent charges in your name. Any fake charges are a red flag you're a victim of identity theft.

Victims of tax refund fraud can submit an Identify Theft Affidavit to the IRS to resolve the issue. The IRS states the typical case of identity theft takes 120 days to resolve. Victims can also report the bad deed to local police, and file a complaint with the FTC.

Join me on Twitter @TaraKateClarke.

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