Are you anticipating a nice tax refund this year? Maybe you have plans for a new TV or a special vacation. But imagine someone beats you to your refund by filing a fraudulent tax return, putting your plans on hold. Instead, you’ll have an identity theft mess to clean up.
Tax scams and identity fraud by the numbers
The good news: In the U.S., tax return fraud declined 70 percent between 2015 and 2018, as the IRS developed new systems for spotting identity theft in tax returns.
The bad news: Tax-related identity theft and fraud increased 10% last year for U.S. businesses and remained a key source of frustration for individual taxpayers, too. In 2019, the IRS identified 3,741 fraudulent tax returns with identity theft and prevented the issuance of $16.7 million in fraudulent tax refunds.
How tax return fraud happens
Tax-related identity theft can leave taxpayers bewildered and frustrated, but the mechanics of it are fairly simple. First, identity thieves obtain sensitive information about you including your name, address, and personal tax identification number. They can either buy the information from criminal sources or trick you into giving it to them through phishing or phone scams. Then they use it to file a tax return using a false address or post office box and wait for the refund check to roll in.
Warning signs of tax return fraud
There are several warning signs that indicate you may be a victim of tax return fraud:
- The IRS or other taxing authority rejects your attempt to file your tax return. If you’re rejected, follow these steps to get your refund back.
- The taxing authority requests verification of your identity, indicating something may be amiss.
- Income is reported by two or more employers, most likely because someone else has used your tax identification number to gain employment. Your return could be flagged for failing to pay sufficient taxes on wages or to report all wages. 
File early to protect yourself
Preempt identity thieves trying to cash in on your good name by filing your tax return as early as possible. When they try to file after you, it will be their fraudulent return that is rejected instead of yours. This is the single best way to reduce your chance of becoming a victim of tax identity fraud.
Resolve tax-related identity theft
If you discover you have become a victim, follow these steps:
- Contact your taxing authority and fill out identity theft paperwork.
- File your correct return using the instructions they provide you.
- Contact the credit bureaus and place a fraud alert on your account.
- Respond promptly to all correspondence from your taxing authority.
- Keep excellent records of all of your correspondence and filings.
- Add a credit monitoring and identity protection service to identify any further identity theft or fraud in other areas of your life.
 IRS, “Identity Theft Remains on IRS ‘Dirty Dozen’ List Despite Progress,” March 6, 2019.
 IRS, “IRS, Security Summit partners mark significant progress against identity theft; key taxpayer protection trends continue,” April 8, 2019.
 Treasury Inspector General for Tax Administration, “Interim Results of the 2019 Filing Season,” April 2, 2019.
 “Taxpayer Guide to Identity Theft,” IRS website, page updated October 22, 2019.