Recognizing and Preventing Tax Fraud and Identity Theft at Tax Time

It is difficult to overstate how important it is to protect personal and financial data, or how pervasive and sophisticated are the illegitimate efforts to obtain that data and to use it to perpetrate tax fraud and to steal money from unsuspecting individuals, not to mention from the government and the IRS. From mining social media to sending phishing e-mails that may appear to come from a bank or even from the IRS, scammers obtain personal and financial information that they can then use to file bogus tax returns, claim fraudulent refunds, and even possibly access bank accounts, credit cards and other sources of ready cash.

Among the warning signs of tax fraud and identity theft are a few things that may come directly from the IRS. The first is an IRS rejection of an electronically filed return. Although it is always prudent to double check for other possible reasons the return may have been rejected, it may be that another return using the same social security number has already been filed, which probably indicates a case of tax-related identity theft. Another warning sign from the IRS is a letter requesting verification of information on a tax return that is not the tax payer’s legitimate return. This too may indicate that a fraudulent return was filed under the same social security number. Then too, if the IRS sends a transcript that was not requested by the taxpayer, it may be as a result of a scammer’s testing the personal identification information of the taxpayer, intending to file a fraudulent tax return with that personal information in the future.

Other warning signs may come from a variety of sources. Scammers have been know to prompt a taxpayer’s receipt of a W-2 form or 1099 statement from some employer unknown to the taxpayer. The thief may do this in the process of filing a bogus return and trying to obtain a fraudulent refund. Other scams involve sending a purported tax refund by mail or direct deposit to test the accuracy of stolen personal identity information that can be used illicitly in the future. Likewise, an unsolicited, unexpected, and pre-paid/pre-loaded debit card is likely not a gift, but more likely it is a warning sign and may be used in the future to collect a fraudulent refund.

Many of the best and most effective ways to protect personal data, financial information and identity are well-known and often-repeated, but constant diligence is required in the face of the ever-increasing opportunities for such information to be hacked, stolen or otherwise compromised. Although it is impossible for individuals to prevent preventing third parties like Yahoo and others from being hacked, individuals can and should do all of the following things.

  • Keep personal computers securely protected with state of the art software programs and encryption, and by optimizing the use of password protection to prevent access to the computer itself and to the accounts accessed from the computer. To optimize password protection, consider the following measures.
  • Use strong passwords, include things like symbols, numbers and a mix of capital and lowercase letters. Stronger passwords will help to secure a personal computer and data, even though these stronger passwords can be difficult to remember and frustrating when that difficulty arises.
  • Change passwords . . . , often enough, though opinions vary as to just how often that is. Most security advisors suggest changing passwords at least a couple times per year, but that timing may be affected by the strength of the password as well.
  • Do not use the same password(s), or even the same security question(s), on all devices and/or for all accounts. The increasing incidents of data breach by many reputable companies make it clear that a “diversity” of passwords and security questions may be just as important to your financial security as a maintaining a diversified portfolio of investments.
  • Be extremely judicious in allowing any computer to “auto-save” passwords. Even “personal” cell phones, tablets, or laptops may be lost or otherwise accessed with relative ease, and in the event they are, not having passwords auto-saved on those devices will help to protect the data and the account access the devices provide.
  • Never open an e-mail attachment from an unknown source or install software from an unfamiliar website.
  • Be careful not to share too much personal information or too many details on social media, and protect and safely store hard copies of things with personal information like social security cards, tax returns and the like.
  • Be aware of phone scammers and never give out personal or account information on a phone call you did not initiate for that purpose.

To schedule an appointment with one of our attorneys or for further information, call us at the Law Office of Gregory P. LaMonaca, P.C., at (610) 892-3877.

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About the author

About Lawrence Welsh

Lawrence C. (Larry) Welsh joined the firm in 2003 after five years of practice with the Delaware County Public Defender’s Office. Native to Lansdowne in Delaware County where he attended public schools, Larry graduated from St. Joseph’s College (in its pre-University days) and taught school briefly before entering the hospitality industry and working his way through hotels, restaurants and resorts in four states and the District of Columbia. As a graduate of Villanova University School of Law, Larry now focuses primarily on the firm’s family law practice along with other areas of the Law. Larry handles a full range of domestic relations matters throughout the five-county southeastern Pennsylvania area and looks forward to expanding the firm’s practice, especially in the family-law field, into New Jersey where he is one of three members of the firm (along with Gregory P. LaMonaca and Christopher R. Mattox) admitted to practice.