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Lane Keeter, CPA

Partner: Tax Consulting, Estate Planning, and Heber Springs Managing Partner

Tax Fraud Awareness: Protect Your Identity and Assets

With the start of filing season, it's a good time to remember that the IRS and you have a common enemy - identity thieves. We all have a part to play in the fight against tax-related identity theft, and there are proactive steps you can take to protect your data online and at home.

The first step is to understand how tax fraud happens. Dishonest individuals may steal taxpayers' personal and financial information from sources outside the IRS, such as social media accounts, where people tend to share too many details, or by using bogus phishing emails that appear to come from the IRS or a bank.

Once they obtain an unsuspecting taxpayer's information, thieves can use it to file fraudulent income tax returns that claim significant refunds.

In addition to refund fraud, thieves may use stolen personal information to access existing bank accounts and withdraw funds, or open new ones without the taxpayer's knowledge. Criminals are becoming increasingly sophisticated and their schemes more complex, making identity theft harder to detect.

The next step is to recognize the warning signs. As taxpayers, you really are the first line of defense against these scams.

The IRS has listed the following warning signs of tax-related identity theft:

Your electronic tax return is rejected by the IRS. That could mean someone else has filed a fraudulent return using your Social Security number. Before jumping to conclusions, first check that the information entered on the tax return is correct. Were any numbers transposed? Did a dependent claim a personal exemption on his or her tax return?

You're asked to verify information on your tax return. The IRS holds suspicious tax returns and then sends letters to those taxpayers, asking them to verify certain information. This is especially likely to happen if you claim the Earned Income tax credit or the Additional Child tax credit, both of which have been targeted in refund frauds in previous tax years. If you didn't file the tax return in question, it could mean that someone else has filed a fraudulent return using your Social Security number.

You receive tax forms from an unknown employer. Watch out if you receive income information, such as a W-2 or 1099 form, from someone for which you did no work. Someone else may be using the phony forms to claim a fraudulent refund.

You receive an unsolicited tax refund or transcript. Identity thieves may test the validity of stolen personal information by sending paper refunds to your address, direct depositing refunds to your bank or requesting a transcript from the IRS. If these tests work, they may file a fraudulent return with your stolen data in the future.

You receive a mysterious prepaid debit card. Identity thieves sometimes use your name and address to create an account for a reloadable prepaid debit card that they later use to collect a fraudulent electronic refund.

If you suspect foul play, contact your tax professional immediately. He or she can help determine whether you're a victim of tax-related identity theft and identify steps to remedy the situation.

Finally, take preventive measures. Here are four simple ways to safeguard your personal data online and at home:

Keep your computer secure. Use updated security software that offers firewalls, virus and malware protection and file encryption. Be stingy with personal information, giving it out only over encrypted websites with "https" in the web address. Back up computer files regularly and use strong passwords (with a combination of capital and lowercase letters, numbers and symbols).

Avoid phishing and malware scams. Be leery of emails you receive from unknown sources. Never open attachments unless you trust the sender and know what's being sent. Don't install software from unfamiliar websites or disable pop-up blockers.

Protect personal information. Treat personal information like cash. Don't carry around your Social Security card. Be careful what you share on social media as thieves can exploit information about new car or home purchases, past addresses, vacations and even your children and grandchildren. Keep old tax returns in a safe location and shred them before trashing.

Watch out for scammers who impersonate IRS agents. IRS impersonators typically demand payment and threaten to arrest victims who fail to ante up. The IRS will never call to demand immediate payment, nor will they call about taxes you owe without first mailing you a bill.

Get in the fight! The deadline for filing returns will be here before you know it. The IRS expects more than 70% of taxpayers to receive a refund, and it's on high alert for refund fraud and other tax-related identity theft schemes.

You can help the effort to fight tax fraud by watching for these warning signs and safeguarding your personal and financial information.

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