There are a lot of ways Identity Theft can mess up your life, none of them good.  One of the most alarming is that it can — at least temporarily — get you into trouble with the IRS.  For some unfortunate taxpayers, an envelope from the IRS might even be their first sign that their identity has been compromised. 

Tax fraud and identity Theft often come hand in hand as a rather unsavory package deal.  Here’s how it works. 

What Is Tax Fraud? 

Tax fraud can take a number of forms, varying with the criminals’ expertise or the “market segment” they serve within the criminal community.  Most forms of fraud start with the scammer obtaining someone’s SSN, most often obtained by scamming victims directly.  Armed with that information, the criminal can either impersonate you, individually, or else mix and match data from multiple victims to create what’s called a synthetic identity. 

From there, scammers can use this stolen identity to do any of the following: 

• File a tax return in your name, effectively stealing your refund.
• Claim your dependents on a return, denying you a deduction you’re entitled to.
• Set up an online IRS account in your name (or if they’ve stolen your passwords, log into your existing account).
• Work illegally using your SSN or identity; or sell them to someone else who will.
• Request an Employer Identification Number in your name, and then use the EIN to employ others illegally.

This isn’t an exhaustive list, and there are variations on those themes, but you get the picture: Identity theft can blow up your relationship with the IRS in a hurry.  It’s low-hanging fruit for the criminals, because it will usually go unnoticed until tax season rolls around again.  That gives them plenty of time to run their scam, take the money, and disappear. 

How to Know You’re a Victim of Tax Fraud

For exactly that reason, your first sign of tax fraud often comes in the form of a letter from the IRS.  If the scammer has committed return fraud, for example, you might receive a notification that the agency has already received a return for the year under your SSN.  In other cases you might be informed that someone else has already claimed your dependents, and that you therefore can’t. 

If the scammers have used your ID to commit employment fraud, you might receive a notice from the IRS that you have income that wasn’t declared on your return.  Alternatively, when you receive your 1099s for the year, you might receive documentation for income you didn’t earn.  You might also be informed that unemployment benefits have been claimed in your name, when you yourself have been steadily employed. 

Needless to say, if any of these things should happen to you, it’s the biggest and reddest of red flags and requires your immediate attention.  Don’t let it slide. 

Dealing with Tax Fraud

If you realize you’ve been the victim of tax-related identity theft or tax fraud, your logical first step is to let the IRS know that something is amiss.  If you found out about the problem when you received a letter from the agency, it probably included a contact phone number to use.  Check it first with Spokeo’s Reverse Phone Number search (mail fraud and bogus IRS letters still happen), then call to explain the situation and set the correction process in order. 

Otherwise, your best starting place is the Taxpayer Guide to Identity Theft at the IRS, where you’ll find pull-down menus that steer you toward IRS sites and documents that will be pertinent in your situation.  This might include steps like completing an Identity Theft Affidavit, or — in the case of return fraud — requesting a copy of the fraudulent return (this is necessarily a lengthy process; if it were easy, then scammers could use it themselves to harvest people’s data).  The IRS also has its own Identity Theft Victim Assistance site, which outlines resources you can leverage at the agency itself. 

One important step you can (and should) take immediately is getting an Identity Protection PIN (IPP).  Once a PIN is assigned, nobody can take any tax-related actions relating to your account without knowing that number, which effectively locks out scammers.  The IRS will send you a new one each year.  You can also add security by requiring multi-factor authentication whenever you interact with the IRS, through methods such as a code sent to your phone or email address. 

Other Steps to Rectify Fraud and Identity Theft

It’s natural to fixate a bit on the tax implications of your stolen identity, but after setting things right with the IRS, there are some other things you should do.  One of the first is reporting your case at the FTC’s IdentityTheft.gov website.  Aside from putting your case on file with the appropriate agency, the site will also walk you through creating a recovery plan to help you minimize the impact of the identity theft. 

That’s important, because once your SSN is out there “in the wild,” you can be pretty sure it’s going to be misused for things other than tax fraud.  Identity theft takes a lot of different forms, after all: All of them can be troublesome, and if someone uses your information to make health insurance claims or receive treatment (medical identity fraud), it can potentially be life-threatening when you need treatment yourself. 

Typical steps you might take include the following: 

• Reporting the identity theft and fraud to one of the major credit reporting agencies (they’re required to notify each other, once you’ve made the initial report).
• Requesting a copy of your credit report, and scrutinizing it for credit-related activity you didn’t initiate.
• Reaching out to any creditors or businesses that may have been defrauded by the identity thief, and having the illicit accounts closed or charges and purchases reversed.
• Reporting the fraud to your local law enforcement agency (some creditors, vendors or insurers may require a police report in order to process your complaint).
• Placing a fraud alert or credit freeze with each of the major credit-reporting agencies (this makes it difficult for anyone to run a credit check, which in turn makes it harder for the scammers to abuse your identity).

It’s a lengthy checklist, but each step helps safeguard your financial profile. 

Beyond the IRS: Identity Theft and the Bigger Picture

So far, we’ve talked about the proverbial “pound of cure.”  But what about the “ounce of prevention”?  While there’s no way to completely protect yourself against identity theft, there are plenty of simple steps you can take to reduce the likelihood of being victimized. 

For starters, you might want to think seriously about how much information you’re randomly exposing online.  The sum total of those, and especially your social media posts, can leave you badly exposed to identity thieves. 

A few common ways all of that information can go astray include the following: 

• One of the companies that holds your data (there are thousands!) suffers a data breach.
• You fall for a phishing email or a phone scam, and inadvertently give your data to a scammer directly.
• Your new online crush turns out to be a romance scammer, out to steal your money or identity.
• You’re using public Wi-Fi somewhere, and a criminal is intercepting network traffic.
• A shoulder-surfer successfully captures your PIN or password and username on camera.
• A criminal raids your physical mailbox for financial statements, invoices and other papers containing sensitive information, or goes “dumpster diving” in your trash for them.

Once your information is out there, it will circulate indefinitely in the criminal underworld.  More importantly, as additional information leaks out over time, the better-equipped criminals will put it together and make it increasingly complete, to the point that they can impersonate you — individually — with full confidence.

Avoiding Identity Theft Proactively

The sum total of information you generate online is sometimes referred to as your digital footprint, and there are plenty of things you can do to scale it back and to protect the rest of your information that remains in circulation. To get a grip on exactly how much of your information is out there, use Spokeo’s people search tools to search your own name, phone numbers, and your physical and email addresses. 

Not to brag, but that can be a real eye-opener (we’re good at what we do).  Bear in mind, this is all information that’s aggregated from public sources.  Less scrupulous companies and outright criminals have access to a lot more information, either stolen from you directly or purchased on the internet’s sketchy black markets. 

Getting the upper hand over identity thieves isn’t exactly rocket science.  It mostly comes down to making sure you’re not among the easy targets, because criminals are all about the low-hanging fruit.  

Things you can do include the following: 

• Use strong passwords and have a separate one for each site or app (trying to remember those is a pain, so give yourself a break and use a password manager).
• Check frequently to see if your phone number, email or passwords might have been stolen in a breach.  If so, those are the passwords to change first!
• Close old accounts at sites you don’t visit anymore.  The fewer sites that have your information, the fewer that can lose it. 
• On a similar theme, delete unused apps from your devices. 
• Check the permissions on apps you keep; newer versions of Android and iOS give you more control over those. 
• Set your accounts to use multi-factor authentication wherever possible.  A text to your phone is a start, but biometric authentication (face recognition, fingerprint reader) on your device is better.
• Take advantage of optional alerts from your bank and credit card providers. 

The Last Word on Protecting Yourself

If you really want to cover your bases, consider a subscription to Spokeo Protect, Spokeo’s identity protection service.  It can tell you when your key personal information is offered up for sale on the dark web, so you can take precautions before your taxes are compromised or other bad things happen.  You’ll get real-time alerts by email, along with data breach alerts, protection against losses, and remediation support from a U.S.-based case manager, among other perks. 

Ultimately, though, your best protection is nothing more elaborate than vigilance.  Educate yourself about scams and internet safety, think twice before you post revealing information on social media, and maintain a skeptical attitude about incoming calls, emails and texts (especially the ones that contain links). 

Taking those basic precautions isn’t paranoia, it’s just a thoughtful acknowledgment that — while they’re not everybody — some people are indeed out to get you.  Knowing what to look for, and how to prepare for them, can help you live your online life with confidence. 

Sources

• US Internal Revenue Service: Taxpayer Guide to Identity Theft
• US Internal Revenue Service: Identity Theft Affidavit, Form 14039
• US Internal Revenue Service: Instructions for Requesting a Copy of Fraudulent Returns
• US Internal Revenue Service: IRS Identity Theft Victim Assistance: How it Works
• US Internal Revenue Service: Get an Identity Protection PIN (IP PIN)
• IdentityTheft.gov: Report Identity Theft and Get a Recovery Plan
• Have I Been Pwned?: Check If Your Email or Phone is In a Data Breach