Understanding the Problem and What the IRS Is Doing About It

Identity theft and refund fraud continue to be among the fastest-growing threats facing taxpayers every filing season. Criminals use stolen Social Security numbers, W-2 information, and personal data to file fake tax returns and claim fraudulent refunds before the legitimate taxpayer files. The IRS processes millions of returns every year, and scammers attempt to exploit this system by filing early and stealing taxpayer information.

Understanding how refund fraud happens and what the IRS does to prevent it helps taxpayers protect themselves and detect problems faster.

What Identity Theft Refund Fraud Looks Like

Refund fraud usually involves a criminal:

• obtaining a Social Security number
• filing a fraudulent return in your name
• claiming a refund electronically
• routing the payment to a prepaid card or unknown bank account

This often happens early in filing season when IRS systems begin accepting returns.

How Criminals Steal Tax Information

Scammers obtain personal information through:

• data breaches
• phishing emails
• compromised tax software accounts
• stolen W-2 forms
• hacked tax preparer files
• online credential theft

Cybercriminals target tax data because refunds can be deposited quickly with limited verification if the IRS is not alerted in time.

IRS Sees Millions of Fraudulent Filing Attempts Each Year

The IRS uses multiple fraud filters to detect suspicious behavior, including:

• duplicate Social Security numbers
• unusual wage patterns
• mismatched dependent claims
• compromised accounts
• suspicious refund routing

The majority of fraudulent filings never result in refunds, but millions of dollars are intercepted every year.

Refund Fraud Can Delay Legitimate Returns

If a criminal files first, the IRS locks the taxpayer’s account to prevent further fraud. This results in:

• delayed refunds
• identity verification requirements
• IRS letters requesting proof
• additional documentation
• longer overall processing times

Victims sometimes experience significant delays while identity is confirmed.

IRS Identity Verification

When suspicious activity is detected, the IRS may require taxpayers to:

• verify their identity online
• use an Identity Protection PIN
• respond to a 5071C or 5747C letter
• provide government identification
• confirm prior filing information

Verification protects taxpayers but slows refund processing, especially during peak filing season.

IP PINs Are Now Available to All Taxpayers

The Identity Protection PIN program used to be limited to confirmed victims, but now any taxpayer can request an IP PIN for added protection. A PIN prevents fraudulent returns because a criminal would need both a Social Security number and the PIN to file a return.

Refund Fraud Warning Signs

Taxpayers should look out for:

• IRS letters about returns you did not file
• rejected e-file attempts for duplicate SSNs
• transcript activity you do not recognize
• missing refunds
• notices sent for unknown addresses

Any unexpected IRS notice involving a new return should be reviewed immediately.

How the IRS Fights Identity Theft

IRS strategies include:

• advanced fraud screening
• identity matching
• wage verification
• secure online accounts
• return locks
• increased preparer security rules

Modernization continues to expand fraud monitoring and identity confirmation before refunds are released.

What Taxpayers Can Do

To reduce risk, taxpayers should:

• file early
• secure IRS Online Account access
• never share personal information by phone or email
• use secure tax preparation services
• monitor their credit
• enable multifactor authentication

Early filing reduces the chance that a criminal files first.

Identity theft and refund fraud remain major challenges for taxpayers and the IRS. Criminals continue to steal personal data and attempt fraudulent refunds each filing season. Stronger verification rules, IP PINs, and secure filing practices help protect taxpayers and reduce the risk of refund fraud.