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Common Tax-Related Schemes

By Ryan L. Kaiser, CFE, Assistant Fraud Risk Manager, Canandaigua National Bank & Trust

Tax day is right around the corner, on April 18! Review some common scams, recommendations, and best practices for filing taxes safely and avoiding potential fraud or identity theft!

Common Tax-Related Schemes

Tax identity theft fraud presents itself in a few different ways. Tax refund fraud occurs when someone uses a stolen Social Security number (SSN) to file a tax return and claim a fraudulent tax refund on behalf of another individual. Other schemes leverage social engineering to solicit personal information such as SSN’s, for the purpose of committing this fraud (or other schemes) later on.

With social engineering attempts, bad actors will reach out to consumers via text message, email, or phone and will typically pretend to be working with the IRS. In text or email schemes, the fraudster will typically provide a link to ‘file your taxes now’ or ‘immediately claim your refund.’

Alternatively, with phone scams, scammers will often mask their true caller ID number and may even be able to spoof a legitimate IRS phone number, to make the inbound call seem more legitimate. Fraudsters typically present themselves as IRS agents and will try to intimidate consumers into turning over personal information.

How To Protect Yourself

  1. Consider obtaining an IP PIN. This tool, an Identity Protection Personal Identification Number, is designed to make it more difficult for fraudsters to file false returns in the names of other taxpayers. An IP PIN is a unique six-digit number which is submitted along with a tax return. For a fraudster to successfully file a return, he or she would also need to know this number. An IP PIN can be obtained through irs.gov
  2. Maintain up-to-date security software. Devices that do not have up-to-date security definitions are more vulnerable to malware, or to external threats which could target personally identifiable information. When your anti-virus program or operating system requests an update, don’t wait days or weeks to do so. Consider allowing for automatic updates to this software. Upgrades and updates tend to target trending viruses or malware!
  3. Avoid public Wi-Fi. Do not use public Wi-Fi for anything related to finances, including tax return filing. Unsecured Wi-FI connections are a known commodity for fraudsters. Bad actors can infiltrate devices through such connections, log keystrokes, steal passwords, and potentially identify other critical personal information for the purpose of stealing identities.
  4. Maintain a sense of skepticism. If you’ve received a threatening call or email from an individual related to the IRS or tax filing, do not immediately act. Talk over the situation with a trusted friend or family member. Fraudsters typically inject a sense of panic because they want their victims to act immediately, before they have time to think the situation through thoroughly.
  5. Be aware! The IRS does not send unsolicited notifications about tax filing via text message or email. Also, they do not initiate contact with taxpayers by phone with threats of lawsuits or arrests. Any true urgent issues with tax filing will be received by consumers in writing from the IRS. Lastly, the IRS won’t ever demand payment for tax-related services via wire, gift card, or prepaid card.

How To React

Consumers will sometimes discover that they are a victim of tax identity theft fraud when they go to file, and they receive notification that a return has already been filed in their name. If you feel you are a victim of tax identity theft, the IRS recommends the following steps –

  1. Respond immediately to documentation received via mail from the IRS, immediately – call the phone number provided.
  2. Continue to pay taxes and file returns, even if this requires doing so by paper.
  3. Complete IRS Form 14039, Identity Theft Affidavit, if an e-filed return is being rejected due to duplicate filings under the same SSN.
  4. Victims should also consider checking their credit report for suspicious loan or credit activity and can also consider a credit block or freeze with the major credit bureaus.