How to Identify Tax Fraud


The first major tax filing deadline of April 18th is quickly approaching and is just around the corner. If you’ve not yet filed your tax forms you’ll be doing it soon or you may be choosing to file for an extension. At some point, you may be expecting to receive a nice tax refund check—unless tax thieves beat you to the draw—and may have filed a tax return in your name to falsely claim your refund before you get the opportunity.

Unfortunately, if a thief has your Social Security number and other relevant person information, tax identity theft is very hard to prevent. Philip L. Liberatore, acclaimed Southern California CPA, notes that “someone could have your Social Security number and they could have been sitting on it for a while… you would have no idea until they go and file a fake tax return under your Social Security number. Sadly, you are unlikely to know any of this has happened until you try to file your return or, if you are lucky, receive a letter from the IRS saying that a suspicious return has been filed in your name.”

According to the Government Accountability Office, the IRS estimated it prevented $24.2 billion in identity-theft refunds in 2013. That’s the good news. Unfortunately, the agency also lost $5.8 billion to this type of fraud the same year. While recent IRS efforts have resulted in a 50% drop in both fraudulent identity theft tax returns, and new identity theft reports from 2015 to 2016, tax identity thieves still falsely claim millions of dollars in undeserved refunds every year.

What Warning Signs To Watch For?

Examples of suspicious activity include receiving tax–related documents you did not request and should not receive, including receiving a fake refund. Occasionally, information meant to be delivered to the thief will be sent to you by mistake. If you receive a tax document from an employer that you have never worked for, a tax transcript that you did not request, or a reloadable prepaid debit card that you did not expect, you should be highly suspicious of potential tax fraud.

You may receive a letter from the IRS asking you to verify a suspicious tax return filed with your name and Social Security number. A greedy thief may try to claim a large refund or make a basic error in the return that compels the IRS to label the return as suspicious. When that occurs, the IRS will contact you to see if the return is legitimately yours.

You may be a victim of identity theft if you receive a notice or letter from the IRS that states one or more of the following:

• More than one tax return was filed using your SSN
• You owe additional tax, have a refund offset, or have had collection actions taken against you in a year you did not file a tax return
• IRS records indicate you received wages from an employer

Note: The IRS will not contact you by email, text message or social media.

What Steps Can I Take To Prevent Tax Fraud?

There are a number of measures that individuals can take to prevent your identity from being stolen or used fraudulently. Perhaps your best line of defense is attempt to file your tax returns early. The best recourse for tax-related identity theft is to beat the thief to the punch, by filing as early as possible in the tax season.

It is preferable to be preventative and extremely careful with your personal information. The IRS urges you to take reasonable and simple steps, such as securing your computer and mobile devices, using strong passwords, avoiding phishing e-mails, and not engaging in suspicious texts and calls from alleged IRS officials. Also, make sure you take similar precautions with your mobile and wireless connections. Never transmit personal information over unsecured Wi-Fi connections or to unverified websites.

Preventing Phishing
• Be aware of e-mails and/or phone calls asking for personal information from you (Important Note: the IRS will never initially email or call you about a tax return, rather they will send you a notice in the mail first)
• Examine e-mails to see who is sending you the communication or notice
• Never provide personal or confidential information to an unverified source
Protect your personal data by keeping it somewhere only you will see it
• Contact the financial institution or agency to establish legitimacy of the e-mail or phone call
• Review bank and credit card statements for any unusual activity
• Use security software with firewall and anti-virus protections. Make sure the software is always turned on and allows automatic updates.

Preventing Tax Fraud
• Follow steps above to prevent phishing
• Carefully choose your electronic filing or filing partner
• Audit and examine your own books for any irregularities
• Be aware of irregular practices including keeping two books and the use of social security numbers belonging to the deceased
• Monitor any communication you receive from the IRS or Tax Agencies
• Make sure your tax records are secure. If they are electronic, encrypt them with strong passwords.

With respect to tax fraud, the IRS is your ally. No one would like to see tax-identity thieves succeed. Do your part, be proactive and vigilant, and help to make 2017 a difficult year for tax-identity thieves.

Phil Liberatore and his team of CPA’s offer a full range of services including general accounting, tax strategy/tax preparation, and financial management for their clients throughout Southern California. Their experienced team consistently invests in continuing education and they are some of the most knowledgeable and credentialed professionals in the industry.

Contact Phil Liberatore, CPA
IRS Problem Solvers, Inc.