Tips on how to prevent being a victim of tax fraud

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By: Phil Bradford
on 19th Apr,2016

Check out some tips to protect yourself from being a victim of tax fraud.

A recent news states that “A Fargo man has been ordered to pay back $45,000 for filing a false income tax return.”

The tax season is knocking at the door and so are the fraudsters and identity thieves expecting to loot you anytime. So, you must take steps to detect and prevent yourself from being a victim of tax fraud.

How to detect a tax fraud

The IRS is also worried about tax fraud and is concerned about its prevention. That is why they used analytics to help the victims of identity theft and refund fraud.

The IRS uses technology to block tax evasion

In the year 2012, Jeff Butler, then Director, Research Databases, IRS Research, Analysis and Statistics organization, in a presentation has summarized the areas where analytics is advantageous. The areas of concern are as follows:

  • Predicting patterns of filing and payment compliance.
  • Estimating U.S. tax gap (taxes not paid on time).
  • Detecting fraud and taxpayer identity theft.
  • Simulating the impact of legislative changes on taxpayer behavior.
  • Optimizing case management inventories.

The IRS has brought a new and improved fraud detection system named the Return Review Program (RRP) to stop these fraudulent activities from occurring. In 2014, “it identified more than 10,000 identity theft cases and more than 300,000 potentially fraudulent returns that were missed by the old system.”

An average taxpayer is more likely to become the victim of a fraudulent tax return than the perpetrator. Generally, a majority of fraud is discovered by these four methods:

  1. Applying top secret algorithms to assess data from each and every tax return that is filed. The details are very carefully guarded. But in general, outliers or patterns are preferred that authorizes additional inspection.
  2. Using even more simplistic data matching of numbers that get reported from different sources.
  3. Randomly selection of returns for audit.
  4. Employing the whistleblowers. Whistleblowers can receive up to 30% of the tax collected.

Have you noticed these signs? If yes, then BEWARE! You might be the NEW VICTIM OF INCOME TAX FRAUD.

  1. The IRS did not accept your income tax return because it was already filed.
  2. You have not received a refund.
  3. You noticed some suspicious activities in your credit report.
  4. You have to pay additional taxes for an unreported income.
  5. Your account is showing a due balance, refund offset or collections for the year you were not needed to file a return.
  6. The IRS records an income coming from a company you’ve not worked for.
  7. Income submitted to the IRS reveals more income than you’ve actually earned.
  8. Your state or federal benefits have been canceled or decreased due to a change in income report that you’ve never made.

Tax fraud prevention tips

Current news update: According to the estimation of the IRS, income tax refund fraud will cost taxpayers more than $21 billion in 2016.

1. Safeguard your personal information

First and foremost, you should protect your personal information such as your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) from the hands of fraudsters. For that, you need to be careful while sharing your personal details online. You must avoid sharing your Social Security Number, credit card digits or any personal details on an unsecured website or over the phone.

You should never download or click on links from unidentified or suspicious emails. Don't access your email from public computers and make sure to log out every time you finish your work. Keep your online identity safe by using anti-malware software and updating your browser settings. Finally, your awareness can save you from being conned. So, STAY CAUTIOUS, STAY SAFE!

2. Take help from a certified tax preparer

Find out the authenticity of a tax preparer before taking help from him or her. A tax preparer must be registered with the IRS and must renew the license every year to meet the job requirements. If you’re seeking help from a local firm, then investigate with the Better Business Bureau (BBB) and read reviews before submitting your personal information into an online tax service. You should go to a qualified, professional tax preparer who can protect your personal details. You can use specialized services from Quickbooks, Katz CPA, and much more for tax preparation.

3. Remember the IRS will never threaten you through call or email

The IRS will never call you and ask your personal details over the phone. The IRS can’t intimidate you through calls and emails. If you ever receive threatening emails or calls from someone from the IRS, then be careful. It’s a scam! Remember, the IRS will use mail for official communication purposes.

4. File your taxes early

Imposters use clever and unique methods to cheat you and use your personal information to claim your tax refund. Generally, the tax season begins from the second or third week of January. Make sure to file your taxes early before the commencement of the tax season. The IRS would reject any return in your name after you have already filed your return. So, you should file your taxes early to keep the thieves at bay.

5. Change your passwords

Fraudsters can hack your accounts if you have simple and easy passwords. Your password is the master key that can open all your accounts. It’s advised that you should keep strong passwords for your accounts and consider changing them every 3 to 6 months so that, scammers can’t hack them. Remember, never use your Social Security Number, date of birth, address, phone number or name as passwords.

# Some important numbers to rescue you from tax fraud:

1. Contact numbers of the fraud departments of the three major credit bureaus:

2. FTC Identity Theft hotline - 877-438-4338.

3. IRS fraud hotline - 1-800-829-0433.

Check out: Taxpayers - Which category do you fit into?

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