How Companies Can Stop Thieves in the Race for Your Tax Return

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Sarah Hofmann
ACFE Public Information Officer

It's unfortunately common this time of year for individuals to file their taxes only to find out that someone has already claimed their return. This type of identity theft can be upsetting, but it may be even more upsetting if they found out their identity was stolen not through a fault of their own, but due to their employer falling victim to a scam.

Savvy cybercriminals are using business email compromise schemes, or "spear-phishing" tactics, to acquire personally identifiable information (PII) through employers. They spoof an email address or phone number to make it look like they are someone from the company's human resources management company or accounting firm — or even someone from within the company itself — and ask for employee W-2s. Once they have the W-2s, they are able to steal employees' identities.

This year, the IRS warned that cybercriminals are widening their target scope from just large corporations to smaller organizations, such as nonprofits and school districts. According to the ACFE's 2016 Report to the Nations on Occupational Fraud and Abuse, small organizations often have fewer anti-fraud controls in place than larger organizations — a weakness that makes them easier targets for fraudsters.

Bruce Dorris, J.D., CFE, CPA, CVA, vice president and program director for the Texas-based Association of Certified Fraud Examiners (ACFE) said, "Fraudsters and cybercriminals are continuing to search for new victims with this unique phishing scam. Many of these organizations have smaller budgets and do not have personnel to defend against these attacks, so nonprofits and school districts must invest and raise awareness in the latest fraud detection and prevention techniques to protect themselves."

Employers can protect themselves and their employees by:

• Educating employees on email best practices
• Never sharing PII over the phone or via email
• Reporting suspicious behavior

The IRS has asked employers who receive phishing emails to forward them to phishing@irs.gov. Employers must remember that as technology evolves, so do fraudsters. The best defense against fraud during tax season is to be wary of anyone asking for sensitive information and to report any suspicious behavior.

You’re a Victim of Tax Fraud — Now What?

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Sarah Hofmann
ACFE Public Relations Specialist

After finally buckling down and finishing your taxes, you may feel a sense of accomplishment and start thinking about how you will use your return. However, that feeling can turn into panic and confusion the minute you receive a notice from the Internal Revenue Service (IRS) that your filing has been rejected, as a return has already been filed using your social security number. You now realize that you’re a victim of tax fraud and identity theft.

Although the IRS has recently met with leaders of private sector firms, state auditors and major providers of electronic tax software in an effort to help prevent identity theft, they are fighting fraud of a formidable size. A report published in 2015 from the Government Accountability Office estimated that the IRS paid out $5.8 billion in 2013 for tax returns that were later determined to be fraudulent.

There are ways to prevent becoming a victim, such as filing your taxes as early as possible and using licensed software with strong anti-virus protection. If you are a victim, however, in spite of efforts to protect yourself, the biggest question is what to do next.

The IRS recommends that first and foremost, you immediately contact them by calling any number provided on the notice of rejection of your filing.  Next, you will need to complete IRS Form 14039, Identity Theft Affidavit. They will direct you to prove your identity, which you may do over the phone or by going to IDVerify.irs.gov. To make the process as smooth as possible, Turbo Tax suggests that you have your tax return from the prior year along with supporting documents such as W-2s or 1099s on hand. Once you've filed a complaint with the IRS, they warn that it usually takes an average of 180 days for the case to be resolved, however, most taxpayers should be able to receive their refund after that period of time.

You should receive a PIN from the IRS that can then be used for future reference to your case. As tax return fraud is also identity fraud, it is a good idea to also file a complaint with the Federal Trade Commission and to contact credit reporting agencies to place a freeze on your credit reports. It’s unfortunate, but now that you’re aware that someone has your personal identifiable information, you must be extra vigilant about your credit and accounts going forward. Identity thieves may choose to sit on your information before using it, or may sell it to a multitude of buyers who can continue to try and use it for years to come.

Although the IRS, private sector firms and U.S. Congress continue to try and develop tools and practices to thwart fraudsters, tax return fraud will likely remain a reality for millions of Americans each year and should be dealt with as swiftly as possible to prevent long-term damage to credit.