Fake tax returns? How Equifax, data breaches increase the risk of fraud

By Taxes FOXBusiness

Tax tips during filing season

FBN's Gerri Willis discusses her user's guide to taxes.

Last year, more than 145 million Americans had their personally identifiable information compromised after unauthorized third parties hacked consumer credit reporting agency Equifax (EFX), which means consumers have reason to be extra cautious this filing season.

Continue Reading Below

“I expect that the number of false tax returns will continue to increase [in 2018],” attorney Jeff Schultz told FOX Business.

Although the Equifax breach was massive, it is far from the only way thieves could potentially access your personal data. In addition to other cyberattacks that have occurred throughout recent years, stolen information is regularly sold on the black market, Schultz noted.

Filing a fake return is a low-lift crime for hackers, since it can go undetected for a while. There are “not a lot of really good ways to prevent it at this point,” Schultz said.

In the first nine months of 2016, 237,750 individuals claimed they were the victim of a fraudulent filing. The Internal Revenue Service (IRS) said the dollar amount of suspect refunds over that timeframe was $239 million – a sharp decline from the year prior.

What to watch for

Continue Reading Below

Unfortunately, the only way to know whether someone has filed a fake claim using your personal information is by filing your own tax return.

At that point, the IRS will notify you of any duplication.

“The IRS will provide a notice if your [Social Security number] is used more than once to file a tax return,” Thomas Phelps, CIO of Laserfiche, said. “Make sure you check your mail after mailing your tax return and look out for any notices. If you e-file, the return may be rejected if the IRS already has a tax return on file.”

What to do if you’re breached

If you get a bounce back notice when you file your tax return, you should immediately contact the IRS. You have the option to fill out a claim online.

You should also notify the Federal Trade Commission (FTC).

Schultz said it is worthwhile to file a report with the local police department, because if an individual’s personal information is out there and future crimes are committed, it could prove helpful in trying to “unwind the impact of the fraud.”

More on this...

Finally, taxpayers should contact the major credit bureaus to put a freeze on their accounts.

“It’s hard to speculate whether the bad guys will use the stolen ID for any other purposes, so certainly if they’ve already been the victim of a false tax return they should be looking in other areas,” Schultz said.

It could take a while before the IRS verifies and irons out the details of the crime: anywhere from six weeks to a year, Schultz noted. During that time, affected individuals will not receive a refund if they had been expecting one.

Small steps to prevent fraud

If you have been the victim of a cyberattack, you should be hyper-vigilant come filing season.

One of the only ways you can stay ahead of thieves is by filing early – before they do. According to a recent survey by TaxSlayer, the majority of respondents, 35%, planned to file in February this year, although 49% of Baby Boomers tended to prefer filing in March or later.

The IRS has begun to roll out e-filing, which can provide a quicker way to file and also an easier notification process if fraud has occurred.

It is worth noting that once some static information, such as birth dates or Social Security numbers, has been compromised, individuals will always be at risk of fraud.