Recent Tax Fraud and Scams, Plus Warning Signs Your Firm’s a Victim

Published: April 4, 2023
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Tax season is the perfect time for cybercriminals to attack. They know accounting and tax professionals receive, send, and store a ton of personal information about their clients during the busy months. This information – names, addresses, wages, Social Security numbers, and more – give criminals exactly what they need to file fraudulent tax returns and receive their victims’ refunds.

Last year alone, over $31 billion was lost to tax-related scams and fraud, and experts warn it won’t slow down anytime soon. According to Allstate Identity Protection, tax fraud was in the top 3 most reported fraud types in 2022.

It’s best to be proactive, know the warning signs, and stay vigilant against cyber threats in your accounting practice.

What is Stolen Identity Refund Fraud (SIRF)?

Tax crimes that involve stolen identities have multiple names: you can refer to them as tax-related identity theft, tax refund fraud, and Stolen Identity Refund Fraud (SIRF), but they all have the same definition: Tax identity theft is when a criminal steals personal information to file fraudulent taxes in their victims’ names. Their goal? They want to get their victims’ tax refunds.

Here are some recent examples of how criminals managed to do this:

  • Michael Dexter Little, a serial tax fraudster, received $12.3 million in fraudulent tax refunds by filing false returns. Little and his co-conspirators attempted to get at least $27 million more. They hoped to use the money to purchase real estate and other assets. Little was sentenced to 19.5 years in federal prison, but it’s not his first time being caught: he was convicted in 1999 and 2003 for tax fraud, too.
  • In March 2023, a federal grand jury indicted a group of seven individuals who allegedly filed over 370 false tax returns and attempted to claim over $110 million in tax refunds using stolen identities. The criminals used their victims’ information to register with the IRS and change their victims’ mailing addresses. They then accessed their tax information, like tax transcripts and wage records, and used it to electronically file tax returns and claim fraudulent refunds.

Warning Signs Your Accounting and Tax Business is a Victim of Tax Fraud or Scams

You could be hacked and not even know it. According to the IRS, here are some common signs that you’re a victim of an attack.

  1. The IRS rejects your client’s e-filed return because they’ve already received another return with their Social Security Number.
  2. You receive e-file acknowledgments for tax returns you have yet to file or more acknowledgments than returns you’ve filed.
  3. Clients contact you about or respond to emails or other requests that you didn’t send.
  4. Your computer starts acting slow, unresponsive, or strange, including software taking longer to load, the cursor moving without you touching the mouse, and/or it locks you out of your computer or network.
  5. Your clients tell you the IRS sent them authentication letters or a refund even though you haven’t filed their tax return yet.
  6. Your clients received a tax transcript that they didn’t request or a message that someone created an online IRS account for them.
  7. Your clients receive a message that someone has accessed their online account or that the IRS disabled it.

Protect Your Firm and Clients from Tax Thieves

Keeping data safe is not just a matter of doing what’s best for your business. Accounting and tax professionals are actually obligated by law to do so. Follow this cybersecurity checklist to see how strong your current data security program is today.

You should also leverage a document management system (DMS) built for accounting professionals. Used by over 2 million people globally, SmartVault is the easiest and most secure way to gather, store, share, and eSign documents in the cloud. Schedule a demo to get started.