Protect Yourself: How to Avoid Tax Identity Theft

Protect Yourself: Guard Against Tax-Related Identity Theft

The Internal Revenue Service (IRS) is urging taxpayers to be vigilant, as tax-related identity theft continues to be a significant problem. According to a recent report, nearly half a million Americans fell victim to this type of fraud in 2024, and they waited an average of two years to receive their rightful tax returns.

This delay highlights the severity of the issue, which is also affecting the IRS’s ability to process returns. Delays in 2023 were already substantial, with cases reported to the IRS Identity Theft Victim Assistance unit taking almost 19 months to resolve.

How Identity Theft Happens

Since the rise of electronic filing, identity thieves have exploited vulnerabilities through sophisticated phishing schemes and large-scale data breaches to steal sensitive information, such as Social Security numbers. This stolen data allows criminals to file fraudulent tax returns and claim refunds before the legitimate taxpayer can file.

“Before electronic filing, identity theft didn’t happen so often. When the IRS began allowing electronic filing, it turned into a problem, especially since they were doing quick turnarounds on refunds.” – Christopher Amundson, President and Founder of Accounting Solutions

This year looks to be even tougher on taxpayers. The IRS has released multiple warnings, asking people to watch for signs of ID theft, like when a tax return is rejected, or if there are alerts/warnings about password resets, or any unusual log-in verification notices.

Another way identity theft can happen is through major data breaches where your personal information is shared. If that happens, it can put you at risk of fraud.

“In this day and age in this digital world, our information is everywhere. It’s unfortunate what’s going on. I just feel like it’s becoming quite prevalent.” – Andre Zagmout, Founder of Zagmout & Company CPAs

Steps to Protect Yourself

While it is impossible to completely prevent identity theft, there are precautions you can take to reduce your risk.

• Safeguard Personal Information: Be extremely careful about sharing personal data online. Avoid providing sensitive information such as passwords and credit card numbers on websites that are not verified or platforms that are not encrypted. Never share sensitive information via phone or email unless it is absolutely necessary.

  “Be very wary of any online form that asks for your Social Security number.” – Ebe Osaigbovo, certified public accountant and founder of SWM Planning

• Be Aware of IRS Communication: The IRS will only contact taxpayers by mail. Be extremely wary of emails, calls, or text messages claiming to be from the IRS; these are most likely fraudulent. The IRS does not initiate contact through these methods unless you have granted them permission.

  “The IRS does not call anybody, and nobody will knock on your door.” – Andre Zagmout, Founder of Zagmout & Company CPAs

• Assess Tax Preparation Service Security: If you utilize a tax preparation service, inquire about the security measures they have in place to protect client information. Some tax preparers’ databases have been hacked.

  “Sometimes tax preparers’ databases are hacked. That’s why I have multiple layers of digital security for my clients and for my company.” – Ebe Osaigbovo, certified public accountant and founder of SWM Planning

• Use Strong Passwords: Ensure that all online accounts are protected with robust, unique passwords. Combine uppercase and lowercase letters, numbers, and special characters. It’s also wise to change your passwords regularly.

• Monitor for Data Breaches: Pay close attention to news reports about data breaches and cyberattacks. If your information may have been compromised, freeze your credit immediately.

  “Whenever you hear [about] a hack or a cyberattack online, a lot of people just dismiss it. But people should pay attention to those headlines because if you attended a theater and their payment system was hacked, for example, the hackers may have access to your credit card information. We’ve heard in the news multiple times that hospitals were hacked. So we’re talking about Social Security numbers, health records.” – Andre Zagmout, Founder of Zagmout & Company CPAs

Additional Protective Measures

• File Taxes Early: Filing your taxes as soon as possible reduces the window of opportunity for criminals to submit fraudulent returns with your stolen information.

  “Basically, it’s a race to see who’s going to file the return first: Will it be you or the fraudster?” – Andre Zagmout, Founder of Zagmout & Company CPAs

• Create an IRS Account: Access your tax information and filing history through an online IRS account. This allows you to monitor for any suspicious activity and take prompt action if fraud occurs.

• Obtain an Identity Protection PIN (IP PIN): The IRS offers an Identity Protection PIN to eligible taxpayers. This six-digit number is required when filing a federal tax return and is valid for one calendar year.

  “What I recommend to everyone — and this is a part of my spiel whenever I talk to a new client — is for them to obtain an identity protection PIN or IP PIN from the IRS,” – Andre Zagmout, Founder of Zagmout & Company CPAs

  You can request an IP PIN through your IRS.gov account. Without the PIN, fraudsters cannot file and claim your refund.

What to Do if You Are a Victim

If you believe you are a victim of tax-related identity theft, take the following steps:

1. File an IRS Identity Theft Affidavit: Use IRS Identity Theft Affidavit (Form 14039), which is separate from the Federal Trade Commission affidavit used to report any type of identity theft.

2. File and Pay Taxes: It’s important to still file your tax return and pay any taxes as usual.

3. Monitor Accounts and Freeze Credit: Place a fraud alert or freeze your credit reports. Closely monitor financial accounts for any irregularities.

4. Consider a Police Report: If credit cards or other accounts have been affected by identity theft, consider filing a police report.

5. Contact the IRS: If you are getting calls or emails asking for personal financial information, stop interacting with the fraudster immediately.

6. Keep Records: Keep records of letters, phone calls and emails. Don’t click links, open attachments; or go to websites with strange looking URLs.

7. Use the Recovery Steps: Update passwords and follow the recovery steps on IdentityTheft.gov.

8. Verify IRS Communications: If victims receive a letter from the IRS regarding their return, verify it’s an official letter before following the instructions.

   “The IRS will send a letter or notice when we suspect identity theft on a tax return. Sometimes, getting your mail is a taxpayer’s first sign they could be affected by identity theft,” – IRS spokesperson Adolfo Flores

9. Seek Professional Help: Consider hiring an accountant or other tax expert to navigate the process.

   “[Victims] need to find a competent accountant to actually get them through this because trying to do it yourself is tortuous. You’re going to need help on this, it’s not an easy process.” – Christopher Amundson, President and Founder of Accounting Solutions

While the IRS will help victims, it may take time for cases to be resolved.