1 Type of Tax Fraud Has Quintupled This Year -- Here's How to Protect Yourself

By Markets Fool.com


Image source: Flickr user Ivan David Gomez Arce.

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We're right in the thick of tax season, which for about four-in-five taxpayers means the expectation of a refund from the federal government. Whereas many individuals and families look forward to their refund checks, it's also the perfect time of year for hackers to come out of the woodwork and steal hard-earned refunds from right under the nose of the IRS and unsuspecting taxpayers.

Is your personal data at risk?
According to a press release issued by the IRS last week, there's been an approximate quintupling in the number of phishing and malware incidents during the 2016 tax season (for calendar year 2015). These tax scams are heading into taxpayers' email inboxes disguised as official correspondence from the IRS, with the purpose of getting you to divulge critical personal information, such as your Social Security number, date of birth, filing status, income, or even verifying PIN information. If criminals get their hands on this important data they may be able to get their hands on your refund.

The IRS notes that 1,026 combined incidents of malware and phishing were reported last month; that's up from 254 in January 2015. Similar statistics were witnessed through the first-half of February 2016, with 363 combined incidents reported compared to 201 incidents throughout all of last February.

IRS Commissioner John Koskinen had this to say:

"While more attention has focused on the continuing IRS phone scams, we are deeply worried this increase in email schemes threatens more taxpayers."

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Koskinen went on to add,

"This dramatic jump in these scams comes at the busiest time of tax season. Watch out for fraudsters slipping these official-looking emails into inboxes, trying to confuse people at the very time they work on their taxes. We urge people not to click on these emails."

Tax scams are becoming the norm
Of course, this isn't the first time we've witnessed consumers' personal data come under fire. Last year, after revising its estimates considerably higher during the summer, the IRS cautioned that a potential 334,000 victims had their identities compromised through the IRS' Get Transcript application. The IRS noted that more than 610,000 fraudulent attempts were made to access personal consumer records through Get Transcript between February 2015 and mid-May 2015. What's more worrisome is that in order to access this app, fraudsters would already have access to critical personal information like Social Security numbers, dates or birth, and mortgage payment details.

Image source: Flickr user Don Hankins.

As a whole, tax fraud and identity theft have been climbing at a fairly precipitous rate. Data from the Treasury Inspector General for Tax Administration shows that the number of taxpayers affected by identity theft rose from roughly 270,500 in 2010 to an estimated 1.63 million in 2013.

In sum, this is a problem that the IRS and taxpayers can't take for granted any longer. You need to be taking steps to ensure you're protecting your personal information (and refund) to the best of your ability. How, you ask? Let's take a brief look at four things you can do to reduce your chances of becoming a tax fraud victim.

Here's how you can protect your personal information
The first thing you can do is not dawdle on filing your taxes, especially if you're owed a refund. Letting your money sit with the government without collecting interest is no good for you, and procrastinating on preparing your taxes allows criminals the opportunity to beat you to the punch. The IRS has noted some instances where fraudulent returns are filed months before the April 15 filing date. Do yourself a favor and don't procrastinate.

Image source: Flickr user David Goehring.

Secondly, be careful where and how you file your taxes. For starters, it's a lot easier for criminals to steal your information from a paper return, and you're also far more liable to make a mistake triggering an audit from a paper return. Thus, your best and safest bet is to do your taxes online and e-file your return.

Along those same lines, you should do what you can to protect your personal information when filing your return. This means avoiding public Wi-Fi networks and other public firewalls where protection may be compromised. In short, do your taxes at home where you hopefully have a safe firewall antivirus software built in, and not your local coffee shop.

Third, avoid giving out your personal information over the phone, and never give it out via email. The IRS has tirelessly reminded American taxpayers that it does not send correspondence by email asking for personal information or tax information verification, and it does not initiate phone calls that request personal information. Unless you initiate the call to the IRS, it's best not to transmit important data over the phone.

Finally, when in doubt, file a return. A number of low-income Americans fail to file tax returns each year because their taxable income, after deductions, falls below the threshold where a return needs to be filed. However, what these individuals may not realize is that they may be due tax credits, even with $0 taxable income, that can be claimed.

The Earned Income Tax Credit is one of the largest sources of tax fraud in the U.S., with criminals targeting eligible EITC filers who choose not to file tax returns (mostly because they don't realize the advantage of doing so). The IRS is doing what it can to cut down on EITC fraud, but it needs consumers to understand that they're enabling fraudsters by not educating themselves about tax laws and how filing returns each year can be in their benefit. Best of all, low-income Americans can qualify for free tax preparation services and assistance through the IRS.

Tax scams aren't going to be eliminated overnight, but taking these basic steps could put a big dent in criminals' attempts to scheme the IRS out of hundreds of millions of dollars each year.

The article 1 Type of Tax Fraud Has Quintupled This Year -- Here's How to Protect Yourself originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.