Identity theft related to tax fraud has decreased by an estimated two-thirds since 2015, according to a report from the IRS. Despite the increase in enforcement activities, thousands of taxpayers fall victim to scams every year.
Read our last post on 2019 Dirty Dozen Tax Scams.
Businesses are not immune to tax fraud or identity theft. Recently, there has been an increase in the number of fraudulent forms 1120, 1120S, and 1041 and Schedule K-1. Businesses, estates and trusts, and partnerships should be aware of these signs of potential fraud:
- Requests for extensions or rejected e-filed returns are denied because the EIN or social security number is already on file.
- Your business receives an unexpected receipt of a tax transcript or IRS notice that doesn’t match anything that was filed.
- You haven’t received timely or routine correspondence from the IRS (thieves will sometimes change the address in the IRS’s files).
The following tips can help you prevent yourself or your business from falling victim to tax fraud or identity theft.
Recognize Phishing Scams
Don’t click on any attachments or links in emails claiming to be from the IRS or a financial institution. If you’re unsure, contact them via phone directly.
You can report phishing scams to the IRS using this email address: firstname.lastname@example.org.
Be Smart About Phone Use
Many taxpayers use their phones for everything from checking email and social media to logging in to bank accounts and accessing sites with stored credit card information. Avoid using public Wi-Fi when financial information or other personally identifiable information could potentially be shared across the network.
Utilize Security Software
Firewalls, browser defense systems, and licensed security software should always be updated and running. Avoid clicking on pop-up ads promising free malware protection and utilize a pop-up blocker. It’s also important to back up your files and encrypt sensitive files and online communications.
Set Smart Passwords
Avoid the over-used and obvious passwords, like pet names. Security experts recommend a password that is at least 10 characters long, includes a phrase, and a combination of letters, numbers, and special characters. It’s also a good idea to use a different password for each online account.
File an Accurate Return
Preparing an honest, accurate tax return is one of the easiest ways to safeguard against fraud or a potential audit. It might seem tempting – and easy – to round up for certain deductions or pad income. These activities constitute tax fraud, and carry with them hefty fines and penalties if caught. Fines can include up to 20 percent of the disallowed amount, $5,000 for filing a frivolous tax return, 75 percent of the amount owed, and even criminal charges.
File early and use a PTIN
Fraudsters cannot steal your information if your return is already filed. Don’t wait until the last minute; file your return as soon as you can. It’s also a good idea to use a PTIN, or personal tax identification number, as an added measure of security. Click here to be redirected to the IRS website for more information on personal identification numbers.
Use Common Sense
Remember that the IRS or any other governmental entity will not ask for information over the phone or through text messages or social media. They will not make ultimatum-type demands or over-the-top threats. Don’t share your personal information with strangers or anyone making claims that sound too good to be true (or too terrible).
Don’t send cash or money orders and make sure there is a verifiable record of payment using a check or credit card.
Telltale signs that you have become the victim of tax fraud as an individual are if the IRS notifies you (by letter) that more than one tax return is associated with your social security number; if you owe additional tax from a prior year return or had collection actions taken against you when you don’t recognize the debt; or when the IRS notifies you (again, by letter) that you received wages or other income from an employer and you didn’t work there.
If you believe you were a victim of tax fraud or identity theft, you can take these steps to report it and begin investigation.
- Contact the FTC
- File the identity theft form with the IRS
- Notify one of the credit reporting agencies
- Get in touch with your bank and other financial institutions
Finally, continue to file your tax return as usual and respond quickly to any written notices from the IRS by calling the number provided. Watch for our next post on how businesses can avoid becoming a statistic in the recent upswing of W-2 fraud.
If you’re ever unsure, get in touch with a tax advisor to assist you with the process. Naden/Lean can help provide more information about tax identity theft and fraud and assist in proactive measures to protect your information. Contact us for more details.