Confronting the reality of tax-related cybercrime: How to protect yourself

Tax-related cybercrime – including online tax fraud – is a growing problem nationwide. Learn how to keep your personal data out of the wrong hands.

Cybercrime has become a priority for law enforcement agencies nationwide. Recently, the IRS joined the fray with its creation of a new Criminal Investigation unit that will hone in on tax-related cybercrime. Based in Washington D.C., the cybercrime unit will collaborate with federal law enforcement agencies to investigate a wide array of tax-related crimes.

One of the primary targets of the new unit will be identity theft. In today's technological climate, vast caches of digital data contain a wealth of personal identifying information such as:

  • Social security numbers
  • Employer identification numbers
  • Bank account numbers
  • Income and wage data
  • Date of birth

In the wrong hands, this data can unlock the keys to not only tax fraud, but also money laundering, investment fraud and other crimes. Perpetrators can readily use identifying information to create and file false tax returns online.

It happens more often than you think

The prevalence of cybercrime is alarming. This year alone, more than 270 large-scale data breaches have compromised more than 100 million records.

Fraudsters often use the personal data of deceased individuals to file fake tax returns. However, they also target living taxpayers, using tools such as hacking and "phishing" to access the data - or even purchasing it on the vast black market of identifying information.

In one high-profile case reported in 2012, three perpetrators filed more than 5,000 fake tax returns, claiming $14 million in stolen refunds.

Tips for taxpayers

As a taxpayer, it's frightening to learn that someone has used your identity to perpetuate tax fraud. Yet, because of the complexities involved in these situations, it can take the IRS up to a year to identify and rectify fraudulent returns.

For law-abiding taxpayers, protecting yourself from identity theft requires vigilance on multiple fronts. One way to safeguard your data is simple: use strong passwords for online accounts and change them regularly. This single measure can go a long way toward bolstering the security of your data.

Another important habit is to periodically review your credit reports. By regularly checking your credit for accuracy, you can increase your chances of catching identity theft and halting it in its tracks - ideally, before it wreaks havoc on your finances.

Keywords: tax fraud, tax crimes, tax law, IRS, identity theft, cybercrime