Before you decide how you will spend, save, or invest your tax refund, you'll want to make sure the check is in the mail to you or your bank account—not a criminal’s.
Tax refund fraud is on the rise. The IRS estimates it paid $5.8 billion in fraudulent refunds in 2013, the latest year for its data. In 2014, tax- or wage-related fraud was the number one complaint from identity-theft victims, according to the Federal Trade Commission.
Thieves use stolen personal information, including your name, Social Security number, and date of birth, plus falsified W-2 information, to file phony tax returns and claim refunds.
If you happen to be one of the unlucky victims of identity theft tax fraud, there are some steps you'll need to take right away. There are a few preventive measures to be aware of, too.
Seem suspicious? It probably is. The first clue that most people will have that thieves have filed a fake return in their name is when they initially attempt to file their taxes. For e-filers, your return will be rejected and won't go through. Meanwhile, for those who snail mail a paper return, it could take a month or two, but the IRS will mail a notice informing you that a return has already been filed with your Social Security number.
Don't panic, but you do need to act fast. If you've e-filed and your return has been rejected, contact the IRS and let them know. You'll need to fill out Form 14039, the Identity Theft Affidavit, available at IRS.gov. Then you'll need to mail in a paper copy of your tax return to the IRS. From there, you'll want to take moves to limit further damage to your personal information. File a police report and a complaint with the Federal Trade Commission. Contact one of the three major credit reporting bureaus and ask for a free 90-day fraud alert on your credit report account. Examine your credit report and close any unfamiliar accounts.
Apply for an Identity Protection Personal Identification Number (PIN) from the IRS. Once you have become an identity theft victim, or if you live in a state where fraudulent tax returns are more prevalent (including Florida, Georgia, or Washington, D.C.), you are eligible to apply for a six-digit PIN that you will need to use when filing future tax returns. This essentially password-protects your Social Security number with the IRS; they won’t accept any future returns that don’t include your unique PIN.
Avoid tax scams. There are many ways criminals can access your personal information, and individuals need to be on alert. The IRS will never e-mail you requesting personal or financial information. If you receive an unexpected e-mail from the IRS, assume it’s a scam. Do not reply or share any information. Don't routinely carry your Social Security card with you; keep it in a safe, locked place at home. For those who are e-filing, it is essential to use firewalls and make sure your virus software is up to date. If you move, make sure the IRS has your current address on file to ensure sensitive documents aren't being mailed to someone else's address.