Tax Season: Protect Your Information
While we frequently encounter alarming tales of tax-related fraud and scams leading to financial losses, the upcoming tax season need not follow the same pattern. Instead, let’s shift our attention to effective defensive strategies aimed at combating, preventing and deterring tax fraud and cybercriminals. A report published by the Internal Revenue Service reported that in fiscal year 2023 (FY23), IRS Criminal Investigation (CI) embarked on over 2,676 criminal investigations, unearthing a staggering $37.1 billion linked to tax and financial crimes. The conviction rate for cases accepted for prosecution stood at an impressive 88.4%1.
CI is the sole federal law enforcement agency that dedicates 100% of its efforts to financial investigations. Their data analytics abilities enabled them to tackle complex financial crimes:
- Bank Secrecy Act (BSA) data was queried in 89.6% of investigations.
- 14% of CI’s investigations were initiated based on BSA information.
- Over 1,300 questionable refund and return preparer investigations were supported using data analytics.
- 231 of these investigations involved identity theft.
- CI seized a whopping 1.7 petabytes of digital data from 3,300 computer devices during the fiscal year.
Additionally, during the 2023 tax season, the IRS flagged over 1 million tax returns for potential identity theft. This persistent fraud remains a significant challenge for taxpayers.
The IRS continues to issue warnings about new tax-related scams, urging vigilance against phishing attempts and emphasizing the importance of safeguarding sensitive personal information.
By following these tips, accountants can play a vital role in protecting their clients from tax season fraud:
- Educate yourself and your clients on the latest tax scams. Stay informed about the most common tactics used by fraudsters so you can recognize red flags and warn your clients.
- Be wary of unexpected emails, phone calls, or letters from the IRS. The IRS typically initiates contact via mail, not phone or email. Advise your clients to verify the legitimacy of any communication by calling the IRS directly using a known phone number.
- Verify all client information and documentation before filing. Scrutinize any inconsistencies or irregularities. Be cautious of inflated deductions or unrealistic income figures.
- Use secure software and encryption for client data. Implement strong cybersecurity measures to protect your clients' sensitive information.
- Implement strong password policies and multi-factor authentication. Enforce the use of complex passwords and require multiple steps for login verification.
- Monitor client accounts for suspicious activity. Be alert for unauthorized access or changes to tax forms.
- Report any suspected fraud to the IRS immediately. If you suspect a client may be a victim of tax fraud, report it to the IRS as soon as possible.For more information on how to take action and protect information from cybercriminals this tax season and beyond, please visit our Cybersecurity Center.
References: Publication 3583 (Rev. 1-2024) (irs.gov)