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Tax Returns & Identity Theft

It is that time of year again when we have to start preparing for the annual tax filing. For some crooks, this time year also presents an opportunity for scamming tax filers out of their annual returns. The instances of tax return fraud through identity theft has increased dramatically this year. Because of the time of year and taxes being on everyone’s mind there are numerous articles on this currently being posted on the Internet.

Using information from a few Internet sources, Fox News, Huffington Post, ABC News, the following figures were found:

  • Last year alone there were over $750 million in suspected fraudulent claims for identity theft,
  • close to 642,000 instances of tax refund identity theft fraud, and
  • only 0.1% frauds resulted in criminal investigation


The prevalence of identity theft continues to grow with more organized crime and other entities getting involved. There are some reasons the tax return fraud has increased so dramatically, including the following:

  • Verification – The IRS does not typically verify information prior to a tax refund going out. With e-filing being the prominent way to file taxes the filer information is much easier to falsify. In many cases when items are filed early the IRS does not even have the employer information to verify.
  • Anonymity – With electronic filing it is easier to falsify and there is no contact with anyone. The funds are then transferred to an account and can easily be moved from that point.
  • Risk – Only 0.1% of the false claims resulted in a criminal case being opened, much less prosecuted. With a low likelihood of being caught and a high return, it is much less risky than most other types of crime.
  • Prevalence – Most everyone with a social security number files taxes. With minimal information you can file taxes. There is only one federal tax authority and we all use it, like it or not. There are multiple banks available so a criminal would have to guess the correct bank to use with a fraudulent Identity, with taxes there is only one.

How do I know?

Do not have a false comfort that the identity theft services such as LifeLock® will protect you from this kind of fraud, however they are looking into adding services like this in the near future. When filing Tax Returns there is not an application to credit agencies or other sources that are typically used to “trap” identity theft. This is yet another reason that criminals can take advantage of information.

You will typically not know that you have been a victim of this until you get a letter from the IRS telling you that a return has already been filed. Should you receive this letter from the IRS, it is very important that you immediately respond to it. This increases the chances that the IRS will be able to intervene, stop the fraudulent payment and possibly capture the perpetrator.


The methods of prevention for this are very similar to any identity theft prevention. The standard prevention methods are there.

  • Credit Report – Check your credit report annually, at a minimum, for any unusual activity.
  • Virus Protection Always make sure your virus software is installed and up to date. This includes the subscription for virus updates.
  • Patches – Keep system patched up to date. This includes all patches and not just Microsoft Windows.
  • Guard Personal Information – This includes only using your Social Security Number when absolutely necessary. Do not carry your Social Security Card. Shred personal information.

File Taxes Early – Filing taxes early is one the one prevention that is specific to this fraud. If you have filed your tax return and received your refund a criminal cannot come back behind you and get your refund from you. If you have reason to believe you may have been compromised this is particularly important in order to beat the crooks. In the event you have to file an amended return it is much easier than fighting to prove you were defrauded.

If you are a victim of tax return fraud, you are not alone. This link provides a step by step guide on what a person should do if they are deemed a victim.

Kevan Agee, CDIA, CISA, CFE

Sources:  Fox News, Huffington Post, ABC News

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