Remember when the U.S. tax refund scam hit $21 billion? Since, IRS has developed anti-fraud strategies, but there is still room for fraud creativity.
Tax refund fraud continues to cost the U.S. government millions of dollars. The most damaging one – and the one that set off the alarms in 2015 – is identity theft.
How tax refund fraud works
In this scheme, the bad actor creates a bogus tax return under a real person’s name and collects the refund. Then, when the legitimate person files his or her taxes, the IRS informs them that they already filed a return and that the refund is on its way, but sent to another mail address.
Corey Williams, sentenced to 40 months in prison after he made millions from tax return fraud, says this type of fraud is as easy as one two three. “One: you collect or buy a list of stolen identities that are readily available in Miami, if you know the right people. Two: you go to one of dozens of tax preparation sites online, and using the stolen social security numbers and dates of birth you fill out a completely bogus W-2 form, claiming a modest refund of a few thousand dollars.”
IRS’s fight against tax refund fraud
In 2015, after the big fraud scandal was revealed, the U.S. began an initiative to crack down identity theft, using a 16-character security code on W-2 tax forms. This private-public effort has been able to reduce tax refund fraud by two thirds, leaving just one third left. But when we talk about billion-dollar losses, one third is still more than any government can afford.
To this year’s tax season equation, we have to add last year’s millions of stolen records. Bad actors today have more data, more sophisticated software and, more greed than ever before.
One solution? File your taxes early to avoid scams. But we all know that’s not going to happen. If you are like 21.5 million Americans in 2017, you will file your taxes at the last minute, rushing to dig out receipts from your stacks of papers.
The IRS is adding security measures, such as the 16-character code, for the 2018 season. However, they are adding layers of security that are based on static data which, although harder to access by a bad actor, could still be stolen.
To protect your identity, IRS can benefit from authentication solutions that include behavioral evaluation. This way, even if your data is stolen, the bad actor won’t be able to replicate your behavior and will be locked out.
How you can protect yourself
But your security doesn’t only depend on the IRS. There are many things that you, as a taxpayer, can do to stay away from fraud this season:
1. Just because someone on the phone says they are from the IRS, doesn’t mean it’s true
It’s very easy to pick up the phone, make a call, and say “I am Andrew Turner from the IRS Collections Department and you owe us money.” They can be very pushy – and even threaten you with jail time – as we see on a transcript of a call from an IRS scam, but that pressure is also the red flag that should warn you.
Be paranoid-level suspicious when someone calls you and says the word “IRS.” Ask them their name, last name, and employee number, and check those with the IRS before you answer any questions. Or simply hang up and call IRS’s secure number.
2. Scammers can also appear at your doorstep
Don’t be impressed by someone showing up at your door flashing a badge – these days anyone can get nice badges on Amazon. Even if it’s cold and rainy and your generous-self wants to offer your visitor a warm cup of tea, close the door and check your IRS account online or through a phone number you trust.
3. Phishing is another common technique used during tax season
Phishing emails can be uncannily similar, and scammers can even include data from your own account. Do not click on a link from any email, and do not answer the questions or call the number provided. Best practice is to ignore it. If you have doubts, check your account online or use the IRS site to contact them.
The IRS has seen it all and has a prepared a site with what you need to be looking out for.
If you receive an unusual communication, inform the – legitimate – IRS about it so they can keep track of the schemes fraudsters are using this year. This will help you and the rest of taxpayers stay protected from future tax schemes.
Related to this post: Should Americans Be More Scared of Fraud Than Terrorism?
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