By Vanessa McGrady
Imagine the shock of filing for your tax return and realizing someone's already done it for you—and pocketed the return.
Tax-return fraud has skyrocketed, with projected costs of $21 billion by 2016, up from $6.5 billion in 2013. In 2014, the Federal Trade Commission (FTC) received 109,063 complaints about tax identity theft, which accounts for 32.8 percent of the 332,646 overall complaints about identity theft. The problem is that it's simple to file a tax return online by just inputting a social security number, name, and address. Thieves can get a jump on their victims by filing early and electronically, while the IRS scrambles to get its fraud detection up to date.
Confused consumers make it easy for thieves. Part of the reason scammers can easily get personal information is because phishing techniques actually work. There are rampant impersonations of the IRS and false threats for lawsuits or collections, where consumers give over their digits because they believe they're talking to an agent on the phone.
According to the FTC: “IRS impersonation scams prey on consumers' lack of knowledge about how the IRS contacts consumers. The IRS will never call a consumer about unpaid taxes or penalties—the agency typically contacts consumers via letter. If consumers get a call purporting to be from the IRS, they should never send money—once it's sent to the criminal, it is impossible to retrieve. They should instead hang up and report the scam to the FTC and to the Treasury Inspector General for Tax Administration at tigta.gov."
The hassle of sorting out the fraud is only part of it. Once a thief has your information, he can use it to get a job—you won't know about those wages, but to the IRS, it will appear that you've made a certain amount of money and aren't reporting it. Your name and Social Security number can also be used to open—and default on—credit accounts.
If you're reading this because you were unfortunately a victim of a tax-return fraud, or know someone who has, there are immediate steps to take once you realize there's a problem. Contact the FTC immediately to file a complaint, either online or by phone at 1-877-FTC-HELP, as well as contacting the IRS at 1-800-908-4490.
You're also in for a lot of back-and-forth communication with various entities and offices. Keep a log of all phone calls, send letters via certified mail, and keep all your original documents.
It pays to understand what is legitimate and what's not. Clever scammers create web pages and email addresses that appear to be from actual organizations and government entities.
According to the National Cyber Security Alliance, if someone is calling or emailing and urging you to provide sensitive information or to act quickly for any reason—say nothing and hang up. To verify if a request is legitimate, get in touch with the company directly by looking their contact information—either on their website or your paper statements. Don't click any links or use any addresses provided in an email.
“When it comes to tax identity theft, consumers' best defense is to file their taxes as early as possible to get ahead of scammers who may attempt to use their Social Security number to get a fraudulent refund," the FTC advises.