6 Tips for Preventing Tax Fraud

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6 Tips for Preventing Tax Fraud

According to the IRS, the agency thwarted 1.4 million attempts of tax fraud relating to identity theft last year, worth $8 billion, and another $2.9 billion in other types of tax fraud.

What is tax fraud? How does it happen? How can you protect yourself and prevent tax fraud?

Tax fraud can happen when when someone uses someone else's identity to file a tax return and collect a tax refund that isn't his or hers or when someone falsifies tax information, such as inflating deductions to generate a larger tax refund.

Here are tips to protect yourself and prevent tax fraud from happening to you.

1. Don't click through links on tax-related emails.

Phishing is one of the "Dirty Dozen" tax scams, a list of common fraudulent tax schemes compiled by the IRS. Using this method, criminals send you an official-looking email that tricks you into clicking links and visiting websites that resemble IRS pages. These deceitful email senders may also pretend to be your tax software provider or financial institution. You may be directed to enter personal information, which then may be used to file a false tax return or commit other types of identity theft.

A phishing email may have a subject line or message that references your tax refund, Form W-2 information or tax account. It may even caution you about fraud attempts on your account.

Scammers could also install malware on your computer when you click on links and visit certain websites. This malware may capture your online activity, such as the sites you visit and logon information, allowing thieves to steal from your financial accounts and commit tax fraud.

Generally, the IRS does not initiate communications through electronic methods such as email, texts or social media messages. You can forward suspicious Web pages and emails to phishing@irs.gov.

2. Don't respond to suspicious calls.

Criminals pretending to be IRS agents may call and threaten you with arrest, deportation or other actions. Don't respond or give out personal information to anyone you're unsure of.

To check if a caller is actually an IRS employee, obtain the person's name, badge number and call-back number. You should also note his or her caller ID number. Then contact the IRS directly at 1-800-366-4484 to confirm that the caller is a real IRS agent with the legitimate need to contact you.

3. Check out your tax preparer.

The IRS urges taxpayers to be choosy when selecting a tax preparer. Generally, anyone with an IRS Preparer Tax Identification Number can offer tax-preparation services, but only enrolled agents, certified public accountants and attorneys can represent taxpayers before the IRS in all matters.

Before choosing a tax preparer, consider verifying his credentials and checking out any disciplinary actions. Resources include the IRS's directory of federal tax preparers and disciplinary sanctions, your local Better Business Bureau, and any available state resources such as a directory of tax preparers or the state attorney general's office.

Red flags that may raise concerns about the intentions of a tax preparer include:

  • Promises to give you a larger refund than other preparers (or guarantees a refund).
  • Calculates fees based on a percentage of the refund, not a flat fee or hourly charge.
  • Tries to sell you extra services such as a guarantee that the tax preparer will reimburse you if he makes a mistake.
  • Promises to resolve tax debt for pennies on the dollar.
  • Asks you to sign a blank return or files the return without your approval.
  • Fails to sign your form and give you a copy of your return.

If you have concerns about a tax preparer, consider looking for another professional to help you. You can report fraud to the IRS or the appropriate state agency.

4. Watch your mailbox.

Tax information is often sent via regular mail. If your mailbox isn't secure, thieves can steal personal and financial information, such as details about your earnings, from W-2 and 1099 forms.

Personal finance journalist Cameron Huddleston suggests monitoring your mailbox to be sure your tax forms and confidential information aren't intercepted by a thief. She suggests contacting your financial institutions if you don't receive forms on a timely basis. Call the IRS if you suspect information was stolen. Generally, you should receive tax forms in the week after their due dates, allowing for mail delivery. In addition, be sure to check your email as some forms may be delivered electronically.

5. File your tax return as early as possible.

Kevin McCormally, chief content officer at Kiplinger, suggests filing your tax return early to help prevent tax fraud.

A criminal may be able to file a return and get a tax refund with just your name, birth date and Social Security number. He or she could request the refund in the form of a prepaid debit card and send it to an address that isn't yours. W-2 forms that you attach to your return are checked against Social Security records, but this process usually doesn't happen until later in the year. By the time the IRS is alerted to a mismatch and potential fraud, an identity thief could have obtained a refund under your name.

By filing your taxes as soon as possible, you could snag any tax refund you are owed before a thief has the chance to file a false return in your name. You may be able to file as early as mid-February after receiving your tax forms.

6. Protect your personal information.

The IRS advises taxpayers to keep personal information secure. Specific actions to protect yourself include:

Bottom Line

The IRS prevents millions of cases of tax fraud every year and seeks to shield taxpayers from fraudulent activity. You may also be able to prevent tax fraud with these six tips.

If the IRS tells you someone has already filed a return using your Social Security number, you owe additional taxes, or records indicate you received income from an employer you don't recognize, you may be a victim of tax fraud and/or tax-related identity theft. To take action to protect yourself, consider contacting the IRS using its guide for reporting suspected fraud activity.

About the Author:Julie Rains is a mortgage-free, debt-free personal finance writer. She began investing in her 20s soon after landing her first real job. She writes about personal finance, mortgages, investing, and related topics at various online media outlets, including her own blog Investing To Thrive. Julie is a graduate of The University of North Carolina at Chapel Hill, where she earned a Bachelor of Science in Business Administration with a concentration in Finance. In her free time, she enjoys cycling, running, hiking, and hanging out with her husband and two sons.

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