How to Detect and Fix A Tax Fraud

Each month, I receive about 4 to 5 different letters or notes from our healthcare provider. I often remark that it’s “mostly a waste of postage” to keep sending out so many notices, but I’m assuming some of it is required by regulatory issues, and others are simply statements of what was paid to providers during the previous month.

How to Detect and Fix A Tax Fraud

But when I opened the most recent envelope, I felt a gut punch. It started out innocuous enough, “Dear Mr. ___,” – and then went on to state that they had experienced a data breach and my personal information, including medical history, birthdate and Social Security number had been stolen.

While the letter went on to say that they would pay for credit reports and credit monitoring, it didn’t make me feel any more at ease. Some cyberthief had stolen my personally identifiable information and could use it to commit identity theft, medical identity theft and tax fraud.

Which is exactly what happened – when I received a notice from the IRS that someone had created an online account in my name – a clear sign of tax ID theft. The nightmare had begun, and I was, according to the Federal Trade Commission , simply one of 45,000 people each year who become victims of tax fraud.

A Closer Look at Tax Fraud

So, what is tax identity theft ? Simply put, it’s when someone uses your personal information to file a fraudulent tax return for the purpose of stealing your tax refund. It violates your personal security and can have a dramatic negative impact on your finances. Even more disturbing is the fact that it often takes a long time to even detect that it’s happening.

While I received a notice from the IRS that someone had created an online account in my name, there are other ways you can tell that you’re a victim of tax ID theft.

For example, you try to file an e-return but aren’t able to complete it. Or, you may receive a letter from the IRS about a suspicious tax return that you know you never filed.

Another telltale sign is when you receive a notice of income from an employer you’ve never worked for. The list goes on and on, but the bottom line is that there are many red flags indicating you’ve become a victim of tax ID fraud.

Ways that Tax fraud can Happen

While my tax fraud was a result of a data breach, there are other ways how it can happen. One of the more common ways is that a person had their Social Security card stolen or it was inadvertently lost.

Unfortunately, many people still carry a paper Social Security card in their wallet or in their purse, which can be easily left at a public place and then taken by a store or restaurant. Once a cybercriminal has a person’s Social Security number, committing tax fraud is very easy.

Another one of the most common ways that cybercrooks gain access to your personal information is through people-search sites, like US Search, Intelius or WhitePages. These sites, also known as data brokers, legally sell this unauthorized personal information to anyone and everyone who is willing to pay for it.

The information includes birthdates, names, names of family members, phone numbers, email addresses, and many other types of personal information.

Preventing Tax Fraud

One of the best ways to avoid tax fraud is to prevent it from happening in the first place. For example, never carry a paper Social Security card in a wallet or purse, as you know what can happen if that card is lost or stolen.

Since people-search sites are one of the main ways cybercriminals collect personal information on unsuspecting victims, you need to delete that information and opt out.

Another step to take is to acquire an IRS identity Protection PIN number. This will provide a higher level of protection for your identity over and above your Social Security number.

Just be aware that it’s quite a rigorous process to obtain one, but it’s worth your time and effort for the added protection it provides.

Securing your accounts with a strong password and using two-factor authentication will also provide a level of security that keeps your private information out of the hands of hackers. A strong password is one that’s 12 characters long, using letters, numbers and symbols.

You should also use a different password for every one of your accounts. This can prove to be a difficult process, generating and remembering passwords, so most people opt for password managers like Dashlane , 1Password and LastPass .

Fixing A Tax Fraud

If you’re a victim, immediately report it to the IRS using an Identity Theft Affidavit , form 1403. You should also report it to the FTC using form 14039 . In addition, be sure to report the fraud to the major credit bureaus, including Experian, Equifax and TransUnion.

You only need to report it to one, as the others will be notified. Depending on the type of fraud involved, you may want to place a credit freeze on your account.

Always respond to any documents sent by the IRS, and request a copy of any fraudulent tax returns. By following the suggestions outlined above, you’ll be able to detect if a tax fraud has been committed against you and fix the problem once you’re aware of it.