Tax-Time Robbery

Adam M. Grossman

THERE’S A NEW TYPE of financial fraud on the rise: tax refund theft. All an identify thief needs are an individual’s name and Social Security number. This information, unfortunately, is readily available. In a single incident in 2017, thieves stole information on almost half of all Americans from credit reporting agency Equifax.

Using this information, thieves then prepare and file a fake tax return in such a way that it appears a large refund is due. This fake tax return carries the victim’s real name and Social Security number, but the criminal’s address, allowing the thieves to collect their fraudulent refund check. The thieves do all of this early in the year, before victims have had a chance to file their own real return.

While it might seem difficult to engineer this sort of brazen fraud against the IRS, it turns out to be surprisingly easy. Because a taxpayer’s address and finances may legitimately change from year to year, the IRS can have a hard time distinguishing a real return from a fake. Result: Over the years, the IRS has paid out billions in fraudulent refunds.

Tax-related fraud is difficult to prevent. Still, there are some steps you can take to protect yourself. Below are four things to understand about how the IRS operates:

  • The IRS never emails taxpayers; it uses traditional U.S. mail. If you receive an email purporting to be from the IRS, delete it. Don’t click on any links and don’t call any phone numbers contained in the email.
  • The IRS will sometimes call taxpayers, but you should be wary of incoming calls. The IRS will almost always precede any call with a letter. In fact, it will normally only call when it hasn’t received a response to multiple letters. If you do receive a call from someone claiming to be at the IRS, do not feel any obligation to engage over the phone. Instead, ask the person to mail you information. Alternatively, if you prefer to resolve the question more quickly, go to the IRS’s website and call back using a phone number that you find there.
  • The IRS will never ask for payment over the phone by credit card. The only way you should ever pay federal taxes is with a check made out to “United States Treasury” and mailed to one of the Internal Revenue Service Centers.
  • In an effort to combat fraud, the IRS may send you a letter called a 5071C. This letter will ask you to confirm your identify and may itself appear to be part of an attempted fraud. If you get a letter like this, go to That page will include an explanation and a phone number for you to call. To be sure you are responding to a legitimate inquiry, call only that phone number.

If you do become a victim of tax-related fraud, I recommend these steps:

  1. Notify the IRS using Form 14039. This is an Identify Theft Affidavit and is your mechanism to formally advise the IRS of the situation. As long as you continue to file your real tax return and pay what is legitimately due, this affidavit will help you avoid any penalties that might be triggered by the thieves. In addition, the IRS will implement additional security procedures for your future tax returns.
  2. You can also call a dedicated department at the IRS, the Identity Protection Specialized Unit. Its phone number is 800-908-4490. A representative can advise you on your specific situation.
  3. Place a fraud alert on your credit file at the three major credit rating agencies. Also review your credit reports. With any luck, these won’t show any additional fraudulent activity, but it’s best to check.
  4. Visit the Federal Trade Commission’s website for helpful information and advice. With most forms of identity theft, the largest cost to the victim comes in the form of time, energy and aggravation. Resources like this can guide you and save valuable time.

Adam M. Grossman’s previous articles include Six Figures, Tiny Taxes, Free for All and On the Other Hand. Adam is the founder of Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter @AdamMGrossman.

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