How to Detect and Fix a Tax Fraud?

Tax fraud is a growing problem for governments. The highest-earning 1% is evading taxes on one-fifth of their income. In fact, it’s a prevalent issue with taxpayers of all earning levels due to reasons intentional and inadvertent. But governments are not just losing tax money because of evasion. They are also paying a significant amount of tax refunds because of fraudulent claims. And these scams could affect innocent taxpayers, too, especially if their personal information is used to commit fraud. A criminal could even steal their entitled refunds.

Today, fraudsters come up with elaborate plans to initiate tax fraud. So, in this article, we’re going to discuss how you could detect common scams and what you should do to tackle them effectively.

What are the telltale signs?

The warning signs of a tax scam will differ based on the type of fraud. But often, the first red flag is a letter from the Internal Revenue Service (IRS). It could be about a duplicate tax refund, overdue taxes, or suspicious activities in your account. Or it might be a letter referring to a tax transcript or an online account that you haven’t created. You might also notice salary details from an employer you don’t recognize or that your online account is deactivated. If any of these come across as unexpected events, then it’s highly likely that you’ve become a victim of tax fraud.

Tax scams occur when a criminal gains access to some sort of personally identifiable information. These can include your social security number (SSN) or tax ID. Now, there are various techniques a fraudster could adopt to steal such personal data. Here are the most common methods and how you can protect yourself against them.

Phishing scams

You can experience a phishing attack via an email impersonating the IRS. It could request you to verify personal details or ask that you click on a link to check your account. It will then direct you to a spoof site that looks remarkably similar to the IRS website. But when you enter your password, it will collect data such as account credentials. And once a criminal gains access to your accounts, they could easily target you for various scams.

You can also encounter phishing with an IRS call scam. Spoofing IRS numbers is significantly easier with today’s technology. So, a racketeer could contact their victims from a number that’s similar to an IRS hotline. They would then typically demand immediate payment of an overdue tax. They could even threaten the victims and ask for payment through a wire transfer. These types of scams frequently target elderly citizens and foreign nationals.

Data breaches

Ransomware is a valuable tool for hackers to access taxpayer information. They could arrive as an attachment in an email or as a malicious website that infects visitors’ devices. Public Wi-Fi provides another valuable access point for criminals to track sensitive data. They could also hack into company databases that contain your personal information. For example, they could target your bank, medical services provider, or credit bureau.

Loss and theft

Data loss and theft can happen in various unexpected ways. For instance, a rogue tax preparer could quietly extract your tax ID details. Sometimes, an old document that contains your identifiable data could make you a victim of a tax scam if you do not follow acceptable practices for discarding confidential documents.

How can you tackle tax fraud?

So, you’ve become a victim of tax fraud; what should you do next? The first step is to gather as much information as possible to understand how it has occurred. Remember, each tax scam is different, and you could get exposed to various threats depending on its nature. So, it’s also essential to assess the impact.

Next, there are three important parties that you should reach out to for support, guidance, and, of course, investigations.

1. IRS

The IRS provides several support services depending on the type of scam you have experienced. For instance, if you believe that you’ve received a phishing email that impersonates the IRS, you can forward all details to phishing@irs.gov. If you have faced financial loss because of an IRS scam, you can reach out to the Treasury Inspector General for Tax Administration (TIGTA). Of course, once you contact the IRS on their hotline, they can guide you through the relevant process. Don’t forget to request a copy of the tax filing records in case there has been a fraudulent claim made under your tax ID.

2. Federal Trade Commission (FTC)

You also need to reach out to the FTC through their website identitytheft.gov. This is particularly essential to tackle identity theft-related incidents. There are two important reasons for this: obtaining a recovery plan and generating an incident report.

Once you submit all the details, the FTC will create a recovery plan, so you can effectively mitigate the impact of the identity threat. Remember, a breached identity does not usually end up with just tax fraud but can lead to various other scams over time. So, taking actions to minimize potential threats is critical as soon as you identify a breach.

The FTC will also release an incident report, which would be essential when dealing with various unforeseen consequences of an identity theft scam.

3. Law enforcement

You should then take the FTC’s incident report and file a formal complaint with the police. Provide the information and evidence you have gathered and request a copy of the police report generated.

Depending on the nature of the tax scam, you may need to take measures to mitigate further damage. For example, if you think a criminal has access to your SSN, you would need to inform the credit bureaus to set up a credit freeze on your accounts. It could prevent criminals from committing further financial crimes.