Watch Out For Tax Return Fraud

Does this sound familiar to you? You have only lived in Massachusetts and New York, yet when you call the IRS about a tax problem, the representative asks you if you've ever lived in Alabama.

So, have you ever lived in Alabama? If not, that is, you are absolutely sure you don't know anyone in Alabama, there's a great chance that someone Alabama knows your social security number and has used it to get a tax refund on your behalf.

Why You Should Worry

It has happened to many and it could happen to you. But when this type of fraud occurs, it is only the beginning of a headache that includes, among others,

* Applying for a Social Security wage report

* Filing a police report

* Speaking on the phone with your designated tax advocate with the IRS.

Experts believe that frauds related to tax returns are a growing problem in the United States. Identity protection companies are seeing more and more tax return scams. But what is a tax return scam? A tax return scam is when someones files very early in the day a return on behalf of another person so they can divert or reroute the IRS' refund.

The Federal Trade Commission reports that the number of tax return scams have jumped to 20,700 in 2007, more than twice the 9,500 reported cases in 2004. As a percentage of the total number of identity-theft complaints received by the FTC, tax return fraud leapfrogged from 1.9 percent to 8 percent over the last five years.

Why Fraudsters Are Liking Tax Returns

Tax return frauds are jumping in figures precisely because it has a higher return on investment than, say, credit card, fraud. If they target wealthy individuals, fraudsters actually stand to gain millions of dollars in tax refunds.

But you really don't have to fall prey to tax return frauds. Here are some tips that you should take to heart:

* Never reply to emails that claim to come from an IRS representative. Simply put, the IRS doesn't communicate with taxpayers that way. Bogus IRS e-mails are a common "phishing" ploy to make you reveal personal data.

* Hang up the phone is someone calls you pretending to be from the IRS asking for personal information like bank-account routing number. The IRS never makes phone unless they have written you beforehand and requested a phone number to call you or your tax preparer.

* Be careful about using Web-based tax preparation programs because they are not as safe as downloaded tax preparation software.

* If, after you filed your tax return, you receive a letter from the IRS saying someone has already filed a return under your Social Security number, file the IRS Form 14026 or "Identity Theft Cover Sheet" immediately. Also, file a police report or an Identity Theft Affidavit with the Federal Trade Commission so your complaint with the IRS can be processed.