Avoid Tax Time Fraud
Avoid Tax Time Fraud

Tax Season Scams

How to protect yourself — and recover — from preparer fraud and identity theft

Original article: By John Waggoner, AARP, published February 16, 2023

How to protect yourself and recover from preparer fraud and identity theft. Tax time is stressful enough. Having someone file a bogus claim in your name or discovering that your tax preparer is a fake can ratchet up the stress to stratospheric levels.

Prevention is the best way to avoid getting your tax return hijacked. If someone does file a false return in your name, you can fix the problem, but it’s a sure bet that your refund will be delayed.

Preparer fraud

Scammers have plenty of ways to take advantage of you, but two favorite scams occur during tax time. Since the start of the COVID-19 epidemic, tax-related identify theft has increased by 45 percent, says Linda Williams, community outreach and training manager for Consumer Action.

The first type of tax scam is preparer fraud. The criminals set up shop as expert tax preparers and promise big refunds. For a fee, they fill out a return filled with trumped-up tax deductions and credits, with your name on the return. When the refund rolls in, it will go to their own bank accounts. By the time you come looking for them, they’ll be long gone.

WARNING SIGNS THAT YOUR TAX PREPARER MAY BE A FRAUD

  • They refuse to sign the return or enter a Preparer Taxpayer Identification Number. The Internal Revenue Service (IRS) requires both if someone else prepares your return. The IRS will initially assume that it’s you who attempted tax fraud. You can look up legitimate tax preparers in a searchable IRS database.
  • They base their charges on a percentage of your refund.
  • They ask you to sign a blank or incomplete tax form.
  • They file the return without allowing you to review it.

But the crime can get worse: “If that person is willing to lie [to get your business], they probably are willing to use your information to steal your identity,” says Rosario Mendez, an attorney with the Division of Consumer and Business Education at the Federal Trade Commission.

That brings us to the second type of tax fraud.

Identity theft

When tax filing involves identity theft, the scammers will get your Social Security number and other information, submit the return, and get the refund delivered to them though their bank. Most often, you won’t discover the fraud until you try to file a return and IRS computers kick it back because a return for you has already been filed. Alternatively, you’ll get an inquiry from the IRS questioning fraudulent deductions.

WARNING SIGNS THAT SOMEONE HAS HIJACKED YOUR TAX RETURN

  • You can’t e-file because of a duplicate Social Security number.
  • You get a letter from the IRS asking about a suspicious return you didn’t file.
  • You get an IRS notice that an online account has been created in your name, and you didn’t create it.
  • You get an IRS notice that you owe additional taxes.
  • IRS records indicate wages from an employer you didn’t work for.
  • You’ve been assigned an Employer Identification Number (EIN) that you didn’t ask for.

Your Tax Return is Ultimately YOUR responsibility

No matter who prepares your return, you are ultimately responsible for its accuracy. “The best thing you can do [to prevent identity theft on your tax return] is to sign up to get an Identity Protection Personal Identification Number,” or IP-PIN, says IRS spokesman Eric Smith. Once you’re part of the program, you get a new IP-PIN each year, which you use alongside your Social Security number when you file a return. “In that sense, it’s a little like two-factor verification in that it gives you an extra layer of protection,” Smith says.

Another easy way to thwart identity theft tax fraud: File early. If you get your return in before the scammer does, the phony return will be rejected.

WHAT TO DO IF YOU’VE BEEN TAX HACKED

Act quickly if you think someone has filed a false return in your name, and never ignore IRS notifications. Note that the IRS doesn’t initiate actions via telephone, email or social media, nor does the IRS threaten to cancel your Social Security number. A real IRS letter has a notice letter or a letter number on the top or bottom right-hand corner. If you’re suspicious, contact the IRS at 800-908-4490.

WHAT TO DO IF YOU DISCOVER THAT YOUR TAX PREPARER IS A SWINDLER

First, call the police. You’re a victim of a crime, and you should file a police report naming the preparer as a suspect.

You’ll also want to fill out IRS forms 14157 and 14157-A .You’ll need a copy of the bogus return, a signed copy of the return you intended to file, proof of the refund amount, and proof that you’ve received the refund. You’ll also need copies of the documents you received from the preparer.

If you’ve received a letter from the IRS about the preparer, send the forms to the address on the letter. Otherwise, send them to:         

Internal Revenue Service​
Attn: Return Preparer Office​
401 W. Peachtree St. NW​
Mail Stop 421-D
​Atlanta, GA 30308

Be Patient: Fraud Resolution can take 120 days

If the IRS hasn’t tried to contact you and you think your identity has been stolen, fill out IRS Form 14039, Identity Theft Affidavit. IRS Identity Theft Victim Assistance will work to help you resolve your tax issue, and help you identify other areas where you might have been compromised, such as with your bank, credit cards or credit rating. They will ensure that your correct return is processed, and release your refund (provided you are due one). The IRS may also put you in the IP-PIN program and get you a new PIN every year.

Try to be patient. The IRS says that resolving ID theft typically takes 120 days. Unfortunately, the COVID-19 pandemic has created an enormous backup in processing cases. Current average wait time: 430 days.

While you wait for the IRS to resolve your case, you’ll have plenty of other things to do. Check with your state tax agency to see what you need to do if the scammer also filed a phony state tax return. You should also report your case to the FTC or by calling 877-438-4338. 

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