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4 Ways to Help Combat Tax-Related Identity Theft

Imagine going to the trouble of filing your tax return only to discover that an identity thief had beaten you to it. Fraudsters using false identities pocketed at least $1.6 billion in tax refunds in 2016, according to the Government Accountability Office, and the IRS confirmed almost 600,000 cases of fraudulent returns in 2017.

What can taxpayers do to help protect themselves? Here are some tips:

  • File early: File your taxes right away—especially if you’re expecting a refund. It may sound like a small thing, but filing early can deprive scammers of the time they need to file a fraudulent return in your name.
  • Don’t take the bait: A common form of tax-related identity theft starts with a fraudster requesting personal information or even a tax payment over the phone or via email. Don’t fall for it—IRS policy forbids personnel from requesting financial or other personal information over the phone or via email, text or social media channels. The agency would also never call to demand immediate payment. It would mail you a bill instead.
  • Speak up: If you suspect you’re the victim of identity theft—tax-related or otherwise—immediately file an identity theft report with the Federal Trade Commission.
  • Add protection: Certain taxpayers can request a six-digit Identity Protection PIN from the IRS as an added layer of protection for tax filings.1

If your refund check is improperly issued to someone else, the fraudster’s next step will likely be to deposit it into an account illegally opened in your name. Freezing your credit account with each of the three consumer credit–reporting agencies can help keep unauthorized financial accounts from being established.

Your financial institution may also be able to help. Banks and brokerage houses, including Charles Schwab, work with the IRS to help reduce tax-related identity theft. In 2017 alone, such firms helped recover 144,000 refunds totaling some $204 million.2

“We work closely with the IRS to identify potentially fraudulent accounts and deposits, with large IRS refund checks given special scrutiny,” says Carol Sniegowski, managing director of fraud investigation at Schwab. “When we can prevent stolen refund checks from being deposited, we help thwart theft and reduce the time necessary to get warranted refunds to the appropriate person.”

1Eligible taxpayers can request an Identity Protection PIN online.

2“Key IRS Identity Theft Indicators Continue Dramatic Decline in 2017; Security Summit Marks 2017 Progress Against Identity Theft,” irs.gov, 02/08/2018.

 

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Important Disclosures:

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

This information is not intended to be a substitute for specific individualized tax, legal or investment-planning advice. Where specific advice is necessary or appropriate, Schwab recommends that you consult with a qualified tax advisor, CPA, financial planner or investment manager.

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