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  1. Identity Theft
  2. Scams

This Is the Best Way to Protect Against Soaring Tax Refund Fraud

Published: Jan 15, 2016 3 min read
Tax refund check
Alamy

The IRS begins accepting tax returns on Tuesday Jan. 19. Given the alarming spike in refund fraud, taxpayers who have the necessary documents in order should consider filing right away.

In 2013 the IRS mistakenly paid out $5.2 billion worth of refunds to identity thieves, according to the Government Accountability Office. Since then the number of refunds stolen through fraudulent e-filing has roughly doubled, according to a new estimate from H&R Block.

Tax refunds are an easy mark for thieves. All they need to file a false return is a name, Social Security number and date of birth. In an informal poll of his 50 top executives, Block CEO William Cobb found that seven, or 14%, had false returns filed in their name last year. And that’s at a professional tax preparation company. “The IRS systems are just so far behind,” Cobb says.

There are steps you can take to minimize the risk, including changing the password every year on whatever account you use to file, Cobb says. If you live in Florida, Georgia or Washington D.C., you can get additional protection by establishing a six-digit PIN.

But the surest safeguard may simply be filing early. Once the IRS processes a return with your Social Security number it rejects any duplicates, which of course creates a paperwork nightmare for the legitimate filer. To motivate taxpayers, Block recently launched a lottery program—between Jan. 16 to Feb. 15 the company will give away $1,000 to 1,000 people a day using its services.

All clients are automatically placed in the daily lottery. With 10,000 offices and an expected 6 million client filers over the next month your odds of hitting the $1,000 jackpot will be a lot better than the 1 in 292 million Powerball winners, but still not great—about 1 in 200.

Even if you can't file early, there are moves you can make to avoid being victimized by ID theft or refund fraud, such as choosing to receive your tax forms via e-delivery and ensuring your wi-fi is secure. To get your return ready as soon as possible, check out Money's tax tips here and here.