Navigating Tax Season Scams
Following on our theme of navigating the current tax filing season, we hope that no one ends up with a large, unexpected tax bill and perhaps gets a refund instead. Tax refunds are often a financial boost as you can use these funds for spending purposes, apply some or all of it toward the estimated taxes that you may otherwise need to pay in 2024 and you can even use your tax refund to make an IRA contribution.
Tax refunds have increasingly become the target of scammers who can use your identity to file a tax return in your name in order to recover whatever money is owed to you by Uncle Sam. Last year, the Internal Revenue Service received 294,138 complaints of reported identity theft, the second most in its history.
The IRS is getting better at stopping tax identity theft with its own internal filters, but you’re much more likely to avoid becoming a victim if you take some precautions into your own hands. One of the first ways to protect yourself is to understand that the IRS never initiates digital contact with taxpayers to ask for their personal information. Anyone who asks you for that information via text, email or social media and claims to be the IRS is lying. Also, don’t be fooled by someone calling from a government agency and claiming that you are already experiencing identity theft. This ruse is on the rise and it’s a scam to get you to fork over your personal information.
It takes the IRS an average of 19 months to resolve identity theft cases, so over a year and a half. And the backlog of cases it’s working on is close to 500,000. As a result, it’s a lot easier to stop ID theft before it happens than to recover from it so it makes sense to take steps to make sure that you’re not unwittingly providing scammers with access.
An easy solution is to simply delete emails and texts you don’t recognize. I personally get spam emails and texts every day and I operate under the impression that my personal information is already out there for scammers to obtain (because it probably is). I routinely delete many emails everyday and, if it’s not from someone I recognize and looks fishy, then I typically also report it as junk and block the sender.
If you don’t recognize the email address that is sending to you, then definitely don’t click on any links in the email itself. This type of phishing is often used to implant malware that can wipe out your device or computer. At ACM, we routinely send bogus emails to our own staff in order to train them to recognize phishing emails and not click on any links in them.
Similarly, if you don’t recognize the phone number for an incoming text, you’re safer just deleting it. When you delete a text, you can similarly report it as junk and block the sender.
The IRS also never asks for credit or debit card numbers on the phone. Even if a call appears to be coming from an official-seeming number, like the one on the IRS website, it’s easy for scammers to spoof the number they’re calling from. The IRS only accepts payment in U.S. dollars and it will also never insist you pay it via a gift card or cryptocurrency.
Many ID theft victims only realize that they have been scammed when the go to file their tax return and realize that some already filed in their name. That means that, in addition to staying vigilant to avoid falling for scammers who falsely claim to work for the IRS, it makes sense to file your taxes quickly and also sign up for the IRS IP PIN program. An Identity Protection PIN (IP PIN) is a six-digit number that prevents someone else from filing a tax return using your Social Security number. It’s only known to you and the IRS and it helps the IRS verify your identity when you file your tax return. An IP PIN is also only good for one year and you need to generate a new IP PIN every year. Your tax preparer and most tax prep software products should ask for you to create and enter an IP PIN when preparing your return.
If someone does file a false return in your name, then it doesn’t mean all hope is lost. If it does happen, then you should immediately report it to identitytheft.gov, which was established by the Federal Trade Commission to help victims. It helps you fill out the appropriate paperwork with the IRS and also offers resources on other types of identity theft, which may come into play.
If someone is experiencing tax identity theft, then they could also unknowingly be experiencing other types of identity theft at the same time. You’ll want to let any financial institutions know that your identity has been compromised and freeze access to your accounts and have new debit and credit cards issued. You should also check the major credit reporting agencies (Experian, Equifax and Transunion) to make sure that no one is using your identity to take out credit in your name. Recovering from ID theft due to unauthorized credit or unauthorized access to your financial accounts just adds to the overall recovery process so it’s a lot easier to take preventative measures here as well.
You should register yourself at all three credit reporting agencies and freeze access to your accounts. I do this myself and, if someone needs access to my credit report for a car lease or a new credit card or even for a new cell phone plan, then I simply log in to each agency and unfreeze my credit reports temporarily (maybe for a day) and then refreeze them all immediately. It’s relatively easy to do online (right on your smartphone) if you already are registered and have log in credentials at each credit reporting agency.
At financial institutions such as Fidelity, you can also log into your accounts and sign up to have alerts sent to you any time funds are withdrawn from your accounts. This may be redundant to a certain extent, but if there is a withdrawal that you don’t recognize, then you’ll know immediately and can contact the institution to prevent and further withdrawals. Again, an ounce of prevention is worth a pound of cure.
Given all of the above, our hope is that the current filing tax season for you is boring and simply routine. This is ultimately a good outcome in the world we live in today. Implementing the preventative measures we’ve described may take some additional work up-front/on a daily basis, but making them routine should help to prevent the alternative, which is a lot more stressful and time consuming. As always, if you have any questions, please don’t hesitate to reach out to your ACM Wealth Advisor.
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