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Protect Yourself From Online Tax Fraud

With April 15th quickly approaching, taxpayers are in the midst of preparing and filing their Federal and state tax returns.  Many taxpayers will file their taxes online.  Unfortunately, those that do file online have to worry about the threat of online tax fraud.
 
Criminals are increasingly turning to online tax fraud as a source of illicit revenue.  In 2013, the IRS estimated that it prevented $24.2 billion in fraudulent identity theft returns.  However, the Federal government also acknowledged that it paid about $5.8 billion in refunds that year, which later turned out to be fraudulent. 
 
The problem has gotten so bad that, last month, TurboTax—a company with 29 million customers—halted all state filings for two days so that it could investigate allegations of a data breach.  The investigation came after nineteen states had noticed a surge in fraudulent state-tax filings prepared using the TurboTax software.  The FBI is allegedly investigating the situation, and Congress will reportedly hold hearings on the issue in the upcoming weeks.
 
What makes it such a lucrative scam is the ability for hackers to receive a direct-deposited refund from the Federal or state government.  The scam begins when a hacker obtains access to your Social Security number.  The hacker will then use your SSN to file a fraudulent return, in your name, overstating the refund amount.  The hacker will have previously established an account with a legitimate bank.  That account will be listed as the account to which the fraudulent refund should be directly deposited.  Once the refund arrives in the account, the hacker withdraws the money and closes the account down.
 
Since the scam starts with your stolen SSN, here are some ways to protect yourself:
•    Avoid Phishing E-mails: Hackers will attempt to gain access to your personal information through fraudulent e-mails.  These e-mails will be made to appear as if they are coming from an IRS agent, informing you that there is something wrong with your return.  The text will encourage the reader to click on a link, which often includes malware that is used to steal sensitive information.  Avoid this situation by not opening these e-mails or clicking on the links, particularly because the IRS will never contact you via e-mail.
•    Strengthen Your Password: To protect against someone infiltrating your TurboTax or other online tax preparation account, make sure that you have a secure password.  Use a combination of letters, numbers, and symbols, and regularly change the password.
•    File a Paper Return: While it may not be as efficient as filing online, submitting a paper copy of your return will keep your personal information offline and, hopefully, out of the hands of hackers.
 
If you do believe that someone has filed a fraudulent tax return in your name, here are some steps that you should take to remedy the situation:
•    Contact the IRS: Notify the IRS immediately that someone may have stolen your identity and filed a fraudulent return using your name and SSN.
•    Contact Your State Revenue Department:  You also need to alert your state revenue department to this possible identity theft.
•    Contact the Maker of Your Online Tax Software: Intuit, the maker of TurboTax, has been offering support and filing assistance to customers.  If you are the victim of online tax fraud, the company has also said that it will provide identity-protection services and free credit monitoring.
•    Contact a Credit Reporting Agency: If someone has fraudulently obtained your Social Security number, you want to protect against your identity being used in other fraudulent activities, such as opening a line of credit in your name.  Contact one of the three credit reporting agencies to place an initial fraud report on your credit report.
 
If you have questions about identity theft, fraudulent tax returns, or cybersecurity issues, contact a member of MacDonald Illig’s Emerging Technologies or Tax Practice Groups.
 
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