How to Avoid Tax Scams and Tax Identity Fraud

Are you anticipating a nice tax refund this year? Maybe you have plans for a new TV or a special vacation? But imagine someone beats you to your refund by filing a fraudulent tax return, putting your plans on hold upon realizing you’ve become a victim of tax scams. Now instead of relaxing, you’ll have an identity theft mess to clean up. And it can take nearly a year – 278 days on average in the United States – to resolve tax fraud and receive your rightful refund.1

It’s your tax refund…don’t let criminals steal it.

Listen to these insights and tips from Eric Russell, Fraud Analyst at Diamond Credit Union:


Tax scams and identity fraud by the numbers

The good news: At least in the U.S., tax return fraud declined nearly 65 percent between 2015 and 2017, as the IRS developed new systems for spotting identity theft in tax returns.2

The bad news: Tax-related identity theft and fraud remain disturbingly common in the U.S., United Kingdom and Canada. In 2017, the IRS confirmed identity theft on 597,000 filed returns.3 Taxpayers in the UK lost £16.2 billion to tax fraud the same year.4 Losses attributed to a common Canadian tax scam increased more than 1,500 percent between 2014 and 2017.5,6

How tax return fraud happens

Tax-related identity theft can leave taxpayers bewildered and frustrated, but the mechanics of it are fairly simple. First, identity thieves obtain sensitive information about you including your name, address, and personal tax identification number. They can either buy the information from criminal sources or trick you into giving it to them through phishing or phone scams. Then they use it to file a tax return using a false address or post office box and wait for the refund check to roll in.

Warning signs of tax return fraud

There are several warning signs that indicate you may be a victim of tax return fraud:

  • The IRS, CRA or HM Revenue & Customs rejects your attempt to file your tax return.
  • The taxing authority requests verification of your identity, indicating something may be amiss.
  • Income is reported by two or more employers, most likely because someone else has used your tax identification number to gain employment. Your return could be flagged for failing to pay sufficient taxes on wages or to report all wages.7
  • An unexpected direct deposit “tax refund” hits your account, followed by a phone call or email from an imposter posing as an IRS agent, who demands your bank account information or repayment; it’s a scam.8

File early to protect yourself

Preempt identity thieves trying to cash in on your good name by filing your tax return as early as possible. When they try to file after you, it will be their fraudulent return that is rejected instead of yours. This is the single best way to reduce your chance of becoming a victim of tax identity fraud.

Resolve tax-related identity theft

If you discover you have become a victim, follow these steps:

  1. Contact your taxing authority and fill out identity theft paperwork.
  2. File your correct return using the instructions they provide you.
  3. Contact the credit bureaus and place a fraud alert on your account.
  4. Respond promptly to all correspondence from your taxing authority.
  5. Keep excellent records of all of your correspondence and filings.
  6. Add a credit monitoring and identity protection service to identify any further identity theft or fraud in other areas of your life.

Diamond has partnered with CyberScout to offer comprehensive identity management services. If you detect suspicious activity or would like to proactively protect your identity, contact us at 610-326-5490 to be connected to a CyberScout fraud expert.



(1) “What the IRS Isn’t Telling You About Identity Theft,” USA Today, January 2016.
(2) “Despite Major Progress, Identity Theft Still on IRS ‘Dirty Dozen’ Tax Scams List,” IRS news release, March 7, 2018.
(3) Internal Revenue Service
(4) “Annual Fraud Indicator 2017,” Crowe Clark Whitehill, University of Portsmouth, and Experian, 2017.
(5)“ ‘Big Game Changer’: CRA Phone Scam Revs Up as Fraudsters Start Calling Cellphones,” CBC News, Sept. 1, 2016.
(6) “5 Scams That Took the Most Money Out of Canadian Pockets Last Year,” CPA Canada, Au. 14, 2018.
(7) “Taxpayer Guide to Identity Theft,” IRS, 2017.
(8) “5 Signs of an IRS Tax Scam,” U.S. News & World Report, March 22, 2018.

cyberscout logo

Content Provided by CyberScout – leading the charge against hackers and thieves, providing identity management, credit monitoring, and cyber security for more than 17.5 million households and 770,000 businesses.

diamond university logoThis article is part of Diamond’s ongoing financial education program.

The views, opinions, and ideas articulated in this blog are just that, and should not be construed as financial or legal advice. The writers of these blogs are educated on the topics they are writing about, but they are in no way licensed financial advisors or registered investment advisors. Diamond Credit Union is not responsible for any actions a person may take as a result of the information they read in one of our blogs.