How to Detect and Fix A Tax Fraud

It seemed harmless enough: the last time I went to my local pharmacy I was offered a discount service if I signed up for it, and every time I had a prescription filled I would earn points that would translate to discounts on future in-store purchases. It was free, it offered savings and it only took a minute to sign up. Sure enough, I needed some over-the-counter cough syrup and when I went to pay, I received a substantial discount on my purchase, just by entering my discount number.

I continued using this service and didn’t think much about it, until last week, when I received a letter from the company that runs the service explaining that they experienced a data breach, and all of my personal information, including my phone number, email and physical address, credit card number and other data were stolen. And that’s when my problems began.

How Cybercrooks Commit Tax Fraud

The first real sign of trouble was when I tried to electronically file my tax return, just as I had done over the past several years. As it turns out, someone else had filed a tax return using my Social Security number. As I quickly learned, that’s a clear indication that a tax identity theft had occurred.  And the data breach started the ball rolling. Many cybercrooks hack into tax preparation services to steal Social Security numbers and tax information, which they then use to commit tax fraud.

I was one of 45,000 taxpayers who filed a report with the Federal Trade Commission that their tax return was compromised or their refund was stolen. Being a victim of a data breach is one way that cybercriminals are able to gather our personal and financial information. But there are other ways they can get that information as well.

People-search sites are notorious for collecting data, both personal and financial, and making it available to anyone who is willing to pay for it. There are more than 100 people-search sites, like Pipl, Spokeo and US Search. These sites are also where Google gets information to post when your name is entered.

Another way cybercrooks gain access to your information is when you have the misfortune of losing your Social Security card. The government advises against carrying it in a wallet or purse, yet each year 300,000 purses and wallets are lost or stolen. If you happen to keep your Social Security card in your wallet, chances are you’ll be a victim of identity theft and tax fraud.

Signs You’re A Victim

Unfortunately, many victims of tax fraud aren’t even aware that they’re a victim until it’s too late to do anything about stopping the fraud. But there are signs that you’re a victim of tax ID theft.

If you can’t file your return, as I couldn’t, that’s a clear signal. Other signals include receiving a letter from the IRS about a suspicious tax return that you know you didn’t file. You may find a tax transcript in your mail that you didn’t request, or a request for payment of taxes from the IRS even though you know you’ve paid them.

You may also see a record of income earned from a company you never worked for, or a notice from the IRS that someone has created an online account in your name. In both instances, you’re probably a victim of tax fraud. While there are things you can do if you are in fact a victim of tax fraud, it’s best to be proactive and try to prevent one from happening in the first place.

Preventing Tax Fraud

In order to prevent tax fraud, you first need to protect yourself from tax identity theft. By monitoring all of your accounts and securing all of your personal and financial information, you’ll have a much better chance of preventing tax fraud.

Because so much of your unauthorized personal information is found on people-search sites, your first line of defense against tax fraud is to remove that information from every people-search site out there. While it may surprise you, there are more than 100 people-search sites that gather your information, and each one has their own protocols for removing information and opting out. It can be extremely time-consuming and hard to navigate through the data removal and opt-out process, but it’s worth every ounce of your strength to get it done. Due to a large number of people-search sites, you may spend weeks to get it done, but realize that it’s an absolute necessity to remove this information.

If you want to have an extra level of protection on top of securing your Social Security number, ask the IRS for an Identity Protection PIN. This takes a lot of effort to get one, but it’s worth the time and energy for the protection that it provides you.

Always secure your online account information by using a strong password and 2-factor authentication whenever it’s available. A strong password should contain 12 characters, including letters, numbers and special symbols. You should also have a separate password for every one of your accounts.

Fixing A Tax Fraud

If you find that you’re a victim of tax fraud, contact the IRS immediately. File an IRS form 4039, which is an Identity Theft Affidavit. You should also report the theft to the FTC, which has its own online theft reporting page. Finally, report it to one of the major credit bureaus – Experian, Equifax or TransUnion, and they’ll report it to the other two.

Be vigilant about securing your information, both online and in your home. And follow the recommendations above to help detect and fix a tax fraud.

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