Tax scams are big business, with billions lost annually

Tax season doesn’t end on April 15: With extensions, quarterly filings, record keeping and planning, sensitive tax information moves among clients, their business advisors, tax authorities and others all year long.

This information flow is one that fraudsters are eager to exploit for profit. And their efforts to gain access to it grow more inventive every year.

Indeed, in 2023 alone, $5.5 billion was lost to tax-fraud schemes, according to the Internal Revenue Service.¹

Most of these losses were the result of fraudulent tax returns: Fraudsters used stolen names, birth dates and Social Security numbers to claim others’ refunds for themselves. In the process, they often created scenarios that left victims owing tax payments.

Compounding matters, a victim of a tax scam typically doesn’t discover fraud has taken place until they:

• Attempt to file a return and find another filing has already been processed in their name
• Are notified that a tax debt they had prepaid remains outstanding
• Discover someone to whom they—or their accountant or business agent—granted computer access (e.g., a repair shop employee) attempted to steal tax or financial data

Given the growing numbers of bad actors at work and the potential for significant financial harm, it’s critical you remain proactively vigilant.

Here are ways to safeguard sensitive personal and/or business information:

Beware IRS impersonators

According to the Federal Bureau of Investigation, crimes instigated by fraudsters impersonating government officials rose 63% in 2023.²

Such deceptions arrive in many forms—phone calls, letters, emails, texts—typically bearing logos, email addresses and signatures that look authentic. But they have one aim in common: to persuade a targeted victim to take immediate action. This might be to provide personal data to claim a (fictitious) outstanding refund. Or conversely, the fraudsters use threats to press victims to pay a (non-existent) tax debt.

Know this: The IRS will never write, call or text you to request personal information. Nor will a tax authority urge you to pay an outstanding tax bill via debit or gift cards, or in cryptocurrency.

Secure documents and payments

Whenever possible, use electronic payment systems instead of paper checks to settle tax bills.

Similarly, use encrypted electronic transmissions, a reputable delivery service that tracks packages or hand delivery to make sure sensitive documents reach your trusted advisors and tax preparers.

Keep in mind: Paper checks and documents can be intercepted. So if you plan to use the U.S. postal system, take envelopes directly to the post office rather than dropping them into a corner mailbox.

Anticipate tax scams

Most victims of tax scams learn their identities (and tax refunds) were stolen long after the crimes had taken place. These preventive actions may help:

• Whenever possible, file tax returns early in the year. Once your return is filed, a fraudster cannot use stolen information to file a return in your name
• Make sure the tax specialists you retain have cybersecurity and fraud prevention controls in place to protect your information
• Request an Identity Protection personal identification number (PIN) from the IRS. This six-digit number blocks others from using your Social Security number or individual taxpayer identification number to file a tax return. (If you’re a victim of identity theft, the IRS will automatically send you a new PIN each year.)

Implement everyday controls

Take precautions beyond tax season to keep sensitive data secure:

• Verify (with a phone call, not by hitting “reply”) the identity of anyone requesting financial data or personal information, such as bank account details and access codes, before you send it. Take the same precautions with requests for non-public business information
• Be on the alert for social engineering scams (in emails, phone calls or texts) that aim to trick you into sharing confidential information
• Install data protection software on all your digital devices to protect against malware and hacking attempts
• Shred documents you no longer need, especially those that contain personally identifying information

Be proactive

• Regularly monitor financial accounts and enable automatic alerts, where possible, so you can quickly identify suspicious transactions
• Report identity theft and take appropriate actions, including freezing your credit reports and enrolling in credit monitoring services
• Report tax fraud to the Federal Trade Commission
• File an IRS Identity Theft Affidavit form with the U.S. Treasury Department to support your tax fraud claim

We can help

Notify your J.P. Morgan team if your identity has been stolen or if a data breach has occurred. Your team can also provide important insights and best practice guidelines on how to protect yourself from tax fraud.