It’s Tax Time! How to avoid scams and identity theft before the filing deadline
In 2022, the U.S. Internal Revenue Service (IRS) identified nearly $6 billion in tax fraud, with more than 100,000 employment or tax-related identity theft reports to the U.S. Federal Trade Commission (FTC). And according to the Canadian Anti-Fraud Centre, reports of scams and phishing emails and text messages impersonating Canadian Revenue Agency (CRA) doubled between 2021 and 2022.
So what is tax fraud? It can involve someone impersonating the government, impersonating you, or impersonating a legitimate tax preparer. The motive could be different every time – they may be looking to steal your tax return, your information for identity theft, or to intimidate you into paying them immediately by threatening you and pretending to be the IRS or CRA asking for payment.
Criminals need very little personal data to steal your identity, file taxes in your name or steal your money — your name, SSN or SIN, birthday and address may be all it takes.
Common types of tax fraud include:
- Someone claiming to be from the IRS, CRA or state/provincial tax agency contacts you via email, phone, text or even social media message.
- They may try to steal your personal private info to commit identity theft or to submit your taxes and steal your refund.
- Or, they may try to steal your money by convincing you to share banking info, credit card info, or spoofing legitimate tax websites
- Someone claiming to be a verified tax preparer – but they’re scammers.
- A fraudulent tax preparer could steal your return or identity.
- Many of these scammers will offer to file your taxes for free or at a massive discount.
Here is how a tax scam typically works:
- It starts with contact from someone impersonating the IRS, CRA or other tax agency. In most cases, targets are contacted by phone, email, text or even on social media by someone claiming to be from the IRS.
- Once they get your attention, they tell you something is wrong, like that your personal info needs to be updated or verified, or you are owed more money, you owe the government money, your SSN/SIN has been suspended or canceled, etc.
- Then, they make an ask. This could be a request for you to “verify” your SSN or SIN, to submit another tax form with more personal info, to make a payment, to share your credit card or bank account or direct deposit info, or click a link where they have asked you to enter information for them to steal.
- Alternatively, some scammers will pretend to be tax preparers, offering to submit your taxes for free or at massive discounts, only to steal your info or money. Even certified tax professionals may abuse their positions to file false claims in your name. That’s why it is important to thoroughly vet any tax preparer, and be especially cautious if a tax preparer refuses to sign your return. The IRS and CRA both have resources to help you find reputable tax preparers.
Unsolicited communications are a common thread in tax scams. It is important to know that tax agencies will typically communicate by mail. Even if your caller ID or your email says IRS or CRA, these can be spoofed, and you should call the number listed on the government agency’s official website, which you find via a Google search (vs. visiting a link within the unsolicited communication) to confirm the truth.
Red flags of tax scams include any of the following:
- They contact you over email, text, or social media message. The IRS and CRA do not communicate with taxpayers using unsolicited emails, text messages, or over social media. The IRS will typically contact you via snail mail.
- You get a recorded phone message. There are some instances in which the IRS will call a taxpayer — typically after sending multiple letters in the mail. But it will always be a human on the other end of the line. Any prerecorded or automated message is a scam.
- They tell you to pay through untraceable, unofficial channels. The IRS and CRA offer several payment methods, including paying at IRS.gov and canada.ca. If a caller says you cannot pay through official channels, or is asking you for an untraceable form of payment (e.g. gift card, cryptocurrency, wire transfer, Venmo, etc.), you know it’s a scam.
- They tell you to make the check out to the “IRS” or to the “CRA.” The IRS requests all checks be made out to “U.S. Treasury,” and the CRA requires checks to be payable to the “Receiver General for Canada.” Scammers can change “IRS” to “MRS” and add the last name of their choosing.
- They want you to share details about your credit card or bank. Legitimate tax agencies will never request login information for your online or financial accounts. If anyone calls asking for credit or debit card details, account login information, or bank account numbers, they’re not from the IRS or CRA.
- They threaten you with arrest or deportation. The IRS and CRA do not make threats. Anyone who claims you’ll be arrested or deported is a fraudster.
- You’re told your ID will be revoked. The IRS and CRA have no control over your identification. Threats to revoke, freeze or cancel identification like your Social Insurance or Social Security number, driver’s license number, business license or visa is a guarantee of fraud.
How to know if you are a victim of tax refund fraud:
Many of these signs involve suspicious activity around your taxes, using your identity.
- The IRS or CRA informs you that another return has already been filed using your SSN or SIN. If someone files for taxes using your identity, you won’t be able to file a legitimate return.
- The IRS or CRA contacts you about a suspicious tax return that you didn’t file. They may reach out and ask you to verify suspicious tax return data.
- You’re informed that an unfamiliar online IRS or CRA account has been created in your name. If someone opens an account using your SIN or SSN, but doesn’t change your contact information, you may receive a notification of the new account.
- You receive unsolicited tax transcripts from the IRS or CRA. If you didn’t request a transcript but receive one, it could be a warning sign of someone else acting on your behalf.
- The IRS or CRA has records of employment that you don’t recognize. Scam artists may try to report a salary that you didn’t earn to increase refunds.
- You receive W-2 or 1099 forms in the U.S. (T4 slip in Canada) from employers that you never worked for. Tax law requires employers to send these forms to their employees every year. If you get one from an employer you didn’t work for, someone has taken a job using your identity.
- Your bank blocks your tax refund check. If a bank blocks a tax refund check or it’s rejected after you deposit it, this could indicate the check you’ve cashed was fraudulent and not from the IRS.
- You receive a refund check before you’ve filed. If you haven’t filed but get a refund check, it’s either an error or a scam. The IRS does sometimes make mistakes, but it’s most likely a fraud. Either way, don’t cash the check — even if it’s an authentic IRS refund, you’ll need to pay back the incorrect amount (plus interest).
- Your tax preparer doesn’t sign your return. Tax professionals must sign the returns they prepare.
- Your tax preparer can’t explain discrepancies on your return. It’s your legal responsibility to verify the information in your tax return before filing. If the return someone prepared for you doesn’t match the data you shared, be suspicious.
How To Protect Yourself Against Tax Identity Theft:
Tax-related identity theft is difficult to catch, making prevention the best way to ensure that your identity and tax return stay secure throughout the tax season. Pay close attention to the way you communicate with the IRS or CRA — and the sensitive data you expose in the process.
Here are some preventative steps to protect yourself against tax identity theft:
- File your taxes early. The sooner you file your taxes, the less time identity thieves have to file a return in your name.
- Protect your SSN or SIN and other sensitive information. If scammers know your Social Security number, they may be able to file fraudulent tax returns in your name. Keep it safe and follow these steps if you think someone has access to your SSN.
- Beware of IRS and CRA imposter scams over the phone, text, or email. Scammers may impersonate IRS agents to trick you into giving up sensitive data.
- Scan the Dark Web for your personal information. If your data was exposed in a data breach, it may be available for sale on the Dark Web. Use Aura’s free Dark Web scanner, like Aura’s, to see what accounts are vulnerable to hackers.
- Consider monitoring your SSN with an identity theft protection service like Aura. The faster you can respond to identity theft, the easier it will be to resolve.
Consider signing up for identity theft protection
Tax fraud is not always preventable, and you may not know that it has occurred until it’s too late. A fraudulent tax return means a thief has your personal information, including your Social Insurance or Social Security number.
If you think you have been the victim of tax fraud, set up a fraud alert or credit freeze at the three credit bureaus. Protect your accounts using strong, unique passwords and two-factor authentication.
Even if you’ve resolved a tax scam, you should consider identity theft protection like Aura since criminals can use your information to open fraudulent loans, commit bank scams, change your address and steal your mail, or even commit crimes using your name. Aura continuously monitors your credit file and alerts you when new inquiries are made into your accounts. Access your exclusive Aura offer at aura.com/marchblog
If you suspect that you have been a victim of identity theft related to your taxes, immediately contact the Internal Revenue Services (IRS) in the U.S. or The Canadian Revenue Agency (CRA) in Canada.