There's an important warning out today about a scary income tax return scam that could cost you big. And the clock is ticking in a race with hackers and identity thieves to file your legitimate tax return before the crooks file bogus returns with your personal information. But this year, the Internal Revenue Service is offering a new layer of protection that might help you avoid this tax return nightmare. Follow along and I'll explain.
In its simplest form, this scam happens when an identity thief files a false income tax return using your name and ID. But nearly everything about the return is bogus including a huge refund due to the scammer.
Problem is, all that fraudulent information gets added to your account. And that is just the beginning of your nightmare. Usually the IRS quickly processes the return and sends the refund to the bank account shown on the return. If that account just happens to be a pre-paid debit card, the receiver is untraceable and that leaves you holding the bag.
As if that's not bad enough, you won't even know you've been scammed until the IRS rejects your legitimate return, usually after the ID thief is long gone with a big fat refund. Anyone with experience dealing with the IRS can probably imagine the years-long ordeal of trying to straighten out the mess. Plus, don't forget that the IRS has the power to freeze your bank accounts and seize your wages until it all gets settled. So trust me, this is a very serious matter.
Now I realize lots of folks think that this only happens to someone else. They think it is so remote that it could ever happen to them. But think about this: Over the past couple of years, literally hundreds of millions of consumers have had their personal information leaked in high-profile hacks at Target, Home Depot and JPMorgan Chase bank, plus hundreds of smaller break-ins at fast food and other retailers across the country. Can you really be absolutely sure that your personal information wasn't compromised in any of these leaks?
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So now you know the scam and the risks, but do you know what you can do right now to help protect your reputation with the IRS? This year, the IRS is offering a new program to help protect tax payers, but you have to know how to apply for it. Plus, I have a list of tips that will help lock down your tax account and keep the hackers from stealing your refund.
Get an IRS Identity Protection Personal Identification Number
As I've been researching this scam, I was shocked at just how easy it is to fake another person's tax return. Basically all a crook needs is your name and Social Security number. With just those two pieces of information, an identity thief can literally wreck your financial life. But the IRS has taken notice. The federal tax agency found about a million cases of tax return identity fraud last year, claiming about $5 billion in fake refunds. The IRS is urgently trying to protect both taxpayers and the national treasury from this rampant fraud.
One effort is the IRS pilot program that assigns an additional, confidential, personal identification number to some tax payers, called an IP PIN. This number is used in addition to your Social Security number on your tax return to authenticate your identity on your tax return. With an IP PIN on your account, an identity thief can't file a fake return with just your Social Security number. They need this new IP PIN as well.
In rolling out the IP PIN program, the IRS is making it available to past ID theft victims plus every taxpayer in just a few states. If you live in these test states, this extra layer of protection is available for you now. The IRS is also notifying some taxpayers that they are eligible for the ID PIN program because of suspicious activity with their tax account. Finally, if you have already been an ID theft victim in other areas of your financial life, you can apply to the IRS to get a PIN. Apply now or find out more about the IRS IP PIN program here.
I can only hope that IP PINs helps stop tax return refund fraud, and that the IRS expands it to every taxpayer. But sadly, the vast majority of taxpayers do not yet qualify for this program. For you, you'll need to step up and take responsibility for your own protection. But don't worry. Coming up next, I have the three steps you can start taking right now to help protect your tax return and your financial life.
2 steps for tax return protection
1. File your return as soon as possible! This is the easiest step you can take right now to slam the door on identity thieves. The sooner you file your return, the less time crooks have to dream up and file a bogus return on your account.
I understand that doing your taxes is far from most people's favorite activity. For some folks, I bet they'd probably rank a root canal higher than doing their taxes. But here's what you need to focus on. The IRS has been accepting 2014 returns since January 20, 2015. The longer you wait to file, the more time ID thieves have to mess up your life. So go ahead and file as soon as you can. That way if an ID thief does try to file with your information, they will be the ones who get rejected by the IRS.
"But Kim, I owe money to the IRS. I don't want to file until April 15 so I don't have to pay any sooner than necessary." Yes, I hear you loud and clear. But here's the secret. You can file any time and usually still not pay until Wednesday, April 15 (consult your tax professional for additional advice regarding payment deadlines).
2. Dealing with the IRS: The IRS will never call or email you about your tax return. Beware of scammers pretending to be from the IRS demanding immediate payment or your personal information. But if you do receive an official letter from the IRS, respond to it immediately.
Be alert to possible identity theft if you receive a notice from the IRS or learn from your tax professional that:
- More than one tax return for you was filed;
- You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return;
- IRS records indicate you received more wages than you actually earned or
- Your state or federal benefits were reduced or canceled because the agency received information reporting an income change.
If you receive a notice from IRS and you suspect your identity has been used fraudulently, respond immediately by calling the number on the notice.