IRS fraud alert: How can tax identity theft occur?

Although you endeavor to secure your personally identifiable information (PII), you can’t shake the feeling that an identity thief is targeting you.

Maybe your last tax return got rejected, or perhaps you found an inexplicable error on your paperwork. Either way, you fear for your privacy.

Tax identity theft can happen to anyone. It only seems like an isolated case until you actually experience it, which explains why many taxpayers fail to prepare for these attacks.

The worst identity theft stories always involve unsuspecting victims. In most cases, they don’t even realize they’ve been attacked until the Internal Revenue Service (IRS) calls them for supposedly filing multiple tax returns or misdeclaring assets.

Fortunately, you don’t have to combat tax fraud alone. Our team researched official IRS resources, news reports, and verified stories from real victims to gain first-hand insights into tax identity theft.

We’ll explain exactly how tax identity theft occurs. And by the end of this piece, you’ll know the most effective ways to bolster your security and minimize the risk of tax fraud.

Please read without skipping. We’ll tell you why identity theft victims are always taken aback by Social Security Administration (SSA) guidelines; otherwise, you’ll end up disappointed if you have any misconceptions.

How can tax identity theft occur? Let’s find out!

Understanding how tax identity theft happens

No one ever expects identity theft to happen. We even read some terrible horror stories where the victims had their information stolen by people they trusted (i.e., friends, family, roommates).

The best way to combat these criminals is to arm yourself with knowledge. Understand what identity tax means, watch out for the warning signs of an attack, and know what to do in case you’re targeted.

What does tax identity theft mean?

Tax identity theft involves the illicit filing of tax returns using stolen PII. Most criminals who commit tax fraud steal their victim’s tax benefits and refunds, so they often execute attacks before the tax season.

Note that tax fraud is just one of the crimes identity thieves commit. If a criminal already has your SSN, they’ll likely claim other government and healthcare benefits under your name.

How common is tax identity theft?

Tax-related identity fraud cases spiked to an all-time high last 2020. The Taxpayer Advocate Service (TAS) states that the IRS looked into over 5.2 million potentially fraudulent tax refunds.

Based on the resources we read, the influx of cases stems from the rampant cyberattacks. Criminals have more access to stolen PII nowadays.

We even came across several insider reports explaining the dangers of the dark web and how it serves as a hotbed of criminal activities. Crooks buy and sell stolen information for just a few hundred bucks.

Unless taxpayers fix their old, insecure cyber hygiene practices, the number of identity theft cases will simply keep increasing.

What states does identity theft happen in the most?

Again, tax fraud can happen to anyone. However, according to the Insurance Information Institute (iii), identity theft runs rampant in the following states:

  • California
  • Texas
  • New York
  • Florida
  • Pennsylvania
  • Illinois

Based on our research, we found that cybercriminals target states with many seniors and young children. For instance, in Florida, most identity theft cases came from retirement community residents.

Crooks target seniors since they rarely check their credit reports. Even if they illegally claim their refunds and returns, older victims won’t realize until the IRS calls them—which could take months to over a year.

Of course, older adults aren’t defenseless against cybercriminals. Stay wary of phishing scams, keep an eye out for ID theft red flags, and don’t hesitate to call the identity theft IRS phone number at 1-877-438-4338.

What are the most alarming signs of tax-related identity theft fraud?

Time is of the essence in combating tax-related identity theft. Bureaus and government agencies can only help after you file a report, so you must watch for warning signs yourself.

Some red flags indicating tax fraud include:

Unusual IRS NotificationsLook into rejected tax returns, duplicate SSN applications, multiple tax return claims, missing tax refunds, offsets, and recently unsettled dues.
Compromised Online AccountMonitor your online account for unusual login attempts. If you don’t have one yet, check your email for notifications saying you suddenly have one.
Misdeclaration of Tax InfoReport any misstatements on your tax returns. Not only will the IRS penalize you for these errors if you don’t resolve them, but they also imply someone else has been filing tax returns under your name.
New EINThe IRS will not assign you an Employer Identification Number (EIN) unless you request one. If you suddenly receive a new EIN, notify the authorities immediately before the criminal files illicit tax benefits under your name. Note that crooks often use this identity theft tactic on kids with no employment history.

Take this chance to sign up for credit monitoring services. Companies like LifeLock, Aura, and Identity Guard will alert you if they notice any unusual transaction involving your PII. That way, you take action ASAP.

How do scammers typically steal your identity?

Cybercriminals only need three pieces of information to claim your tax refunds: your name, birth date, and SSN. 

People often display the first two details on social media. As such, criminals will likely spend much of their resources extracting SSNs through:

  • Phishing Emails: Stay wary of the web pages and emails asking for your PII. Note that the IRS identity verification won’t suddenly ask for critical PII over email, social media chat apps, or text.
  • Vishing Scams: Voice phishing tactics involve calling victims as an institution authorized to ask for specific PII (i.e., full name, birthdate, address, SSN).
  • Brute-Force Attacks: Choose a strong, hard-to-guess password. You can use password checkers to ensure that criminals can’t quickly bypass your login credentials through brute force.
  • Petty Theft: Even acts of petty theft like a stolen wallet or phone can lead to identity theft if it contains critical PII. As a general rule, don’t carry your SSN card in your wallet.
  • Digging Through Trash: Be careful about how you discard your paperwork containing sensitive information. If possible, shred them to pieces first.

Overall, stay vigilant against potential attacks. Use zero-knowledge encrypted password managers, store your SSN card in a secure vault, and avoid disclosing your SSN haphazardly.

What to do if you fall victim to identity theft

If you think that someone is misusing your PII, reach out to the following institutions promptly:

Internal Revenue System

The IRS should flag your account following tax identity theft suspicions. It will also tell you all the tax returns supposedly filed under your name in the past few months.

To submit a report, file the IRS identity theft form. You can also call its toll-free hotline at 1-877-438-4338 if you have any queries or clarifications. 

Federal Trade Commission

Report your incident to the Federal Trade Commission (FTC) through its identity theft assistance website. The site walks you through identity restoration. 

You’ll get an IRS identity theft letter template, plus several forms to send to banks, insurers, and credit bureaus. These institutions will help you monitor any unusual activities under your name.

Social Security Administration

As for the SSA, it only takes complaints. It records any evidence proving your SSN is compromised, but it can’t assist with any issues involving your credit score, financial reports, or even criminal records.


The SSA makes it seem like identity theft victims can quickly ask for a new SSN, but that’s not the case. Even if you have proof of identity theft, the SSA will likely reject your request. Many victims spend years convincing the SSA to change their SSN.

Credit Bureaus

Place a fraud alert on your credit reports. Afterward, ask for a copy of your credit report so that you can review any unusual transaction in the past year.

The three main credit bureaus (Equifax, Experian, and TransUnion) give U.S. citizens one free credit report per annum. You can request yours online or call (877) 322-8228.

Credit bureaus generally charge around $14 for extra credit reports requested in the same year. However, you might be entitled to another free report if you:

  • Were recently denied employment, loans, or credit card applications due to bad credit
  • Need your credit report for employment purposes
  • Received bills for loans you didn’t sign up for
  • Had trouble with your tax returns for filing multiple times

Call the hotline listed above so that your preferred credit bureau can tell you exactly whether you qualify for a free credit report or not.

Card-Issuing Banks

Ask your card-issuing banks to freeze your credit card accounts. We understand the inconvenience of temporarily losing your credit line, but it’s a small price to prevent credit card fraud.

What happens after you report identity theft

The IRS automatically flags your account after you file a report. The tax returns your file moving forward will undergo extra evaluation until you confirm you’re no longer at high risk of identity theft.

However, to set your expectations, note that it might take years before the IRS reverts your account status. 

Preventing tax-related identity theft

When it comes to identity theft, prevention is better than cure. As we mentioned above, you can never guarantee the safety of your exposed PII, no matter how many reports you file.

Overall, avoid any instance compromising your information. Remember: criminals extract critical PII by spreading spyware viruses, executing vishing tactics, bypassing accounts through brute force, or even digging through your trash.

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