Three 2022 Imperatives for Tax Season Identity Fraud Prevention | #phishing | #scams | #education | #technology | #infosec


It’s officially tax season, which means that threat actors are prowling for opportunities to commit identity fraud. While many tax-related scams typically spike at this time of year, 2022 promises to be uniquely challenging for identity fraud deterrence and prevention.

A confluence of factors, including shifting consumer preferences for online platforms, increasingly expensive data breaches and continued pandemic-related uncertainty, make identity fraud an especially daunting concern this year.

Even before the pandemic, billions of records were available on the dark web. Sprinkle in a nationwide quarantine, and in 2020, the volume of records compromised by breaches jumped by 141% to a whopping 37 billion, the largest number seen since 2005. At the same time, our most recent Consumer Digital Identity Study found that unauthorized digital account openings increased by 21% in the last year.

What’s more, as a recent IRS Taxpayer Alert revealed, online shopping and behavior during the holiday season frequently serve as precursors for identity theft and scams during the subsequent tax season.

Simply put, fraudsters are now awash in stolen personal data, allowing them to perpetrate fraud with few obstacles and relative impunity.

For many tax professionals, cybersecurity and identity verification concerns often take a back seat to more urgent and tangible demands during a busy season. This year, tax professionals need to recognize that their clients’ data is highly targeted by threat actors, as well as augment and enhance identity verification and cybersecurity practices to protect client information and ensure timely tax filings and returns. Here is what tax professionals need to know to effectively advise clients in tax season 2022.

Companies and tax professionals should be especially focused on vulnerable cohorts of the population, including the elderly and young. In 2021, fraud alerts for seniors grew by 200%, while alerts for people under 13 surged 117%. Additionally, fraud indicators suggest a dramatic 174% uptick in threat actors leveraging deceased identities to commit fraud, a problem tragically made more pervasive throughout the recent pandemic.

1. Identity Verification is an Ongoing Challenge and Should Be a Strategic Priority in this Digital Age

Last year, identity theft was a top concern during tax season. According to reporting by CNBC, the IRS flagged 5.2 million tax refunds for fraud last year, a 50% year-over-year increase. Nearly two million returns required additional identity screening. While these efforts prevented $2.5 billion in losses in 2019, they often delayed tax refunds, depriving people of financial resources at a critical time.

In many ways, this shouldn’t be surprising. Identity verification is the number one challenge businesses face in fighting fraud. That’s why now is the time to create a defense that will balance fraud detection and deterrence with the pressure to make the customer experience seamless, particularly for those who have thin credit files or are less savvy and depending on online services for the first time. At the same time, tax season requires businesses to be vigilant, watching for variants of tried and true new account fraud.

With heightened factors contributing to fraud this tax season, it’s an ideal time to take stock of identity verification measures to ensure they provide:

  1. Multiple layers. The ability to analyze multiple layers of attributes, including mobile carrier network data, and use dynamic “step-up” escalation methods only when needed will help ensure the customer experience is both smooth and secure
  2. Fraud intelligence. Just as criminals collaborate on the dark web, businesses also benefit from collaborating and sharing intelligence. Consortium data that provides real-time fraud intelligence between companies and across industries makes it possible to leverage the fraud mitigation efforts of other companies. Fraud is often transient within companies and across companies, industries, and the world. Increasingly, fraudsters are hitting multiple companies swiftly in a short amount of time, often using mules to cleanse the stolen funds.
  3. Transparency. With an ability to act quickly and understand how identity verification attributes are performing, businesses can make adjustments to attributes that pinpoint fraud on an extremely granular scale while streamlining the verification process for real customers.

Meeting these identity verification standards can help tax professionals secure their clients’ personal information while ensuring that they receive timely returns.

2. People Aren’t Powerless: Everyday Precautions to Take

While we expect to see more fraud this tax season, there is some good news. American taxpayers appear to be taking more precautions. For example, the recent Consumer Digital Identity Study showed a marked increase in the number of Americans taking steps to protect their personal data in the aftermath of a breach. From changing online account passwords and enabling two-factor authentication to subscribing to receive fraud alerts from their financial institutions, U.S. consumers are playing an active role in protecting their personal data.

Even so, nearly half of Americans don’t feel ready for cyber fraud warfare, believing that they lack the knowledge and tools to protect themselves from cyber-attacks and fraud. Meanwhile, the expansive nature of today’s fraud landscape can create the illusion that people are powerless to protect themselves. They are not.

The above strategies can help people protect their personal and financial information by keeping online accounts secure. Tax professionals can support these efforts by educating clients on this year’s amplified fraud risks and equipping them with best practices to safeguard their identities.

3. Building Trust Is Critical and Complex

As tax professionals strive to prevent fraud, they will need to establish trust with customers, which is easier said than done.

The Consumer Digital Identity Study also found that consumers are aware of the growing potential for fraud. Ninety-six million Americans expect the number of fraud attempts involving their identity or accounts they own to increase over the next 12 months, and 61% are concerned their personal information will be used by criminals to open a new financial account. Yet they aren’t confident in the ability of companies to responsibly use and protect their data. Seventy percent suspect that companies gather data without their permission, and 59% don’t think companies do enough to safeguard the personal identifiable information they possess.

More and more, consumer trust hinges on the ability of businesses to safeguard identities and keep consumer data private, particularly during online account opening and onboarding.

More Effective Fraud Prevention Is Important and Possible in 2022

Now is the time to conduct “tax tune-ups” and take a fresh look at the diversity of data sources, drilling into the transactional data settings, which means going beyond the mere ambiguous scores to adjust the settings, add layers, and dial accordingly for this year’s fraud schemes. This year brings distracted consumers, fraud teams working remotely, more sophisticated schemes, and a host of other circumstances that complicate tax season. The times we’re facing aren’t easy, but validating identities with these behind-the-scenes methods and applying friction only when needed can lead to less fraud this tax season.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Christina Luttrell is the CEO of IDology, a GBG company and leader in multi-layered identity verification and fraud prevention.

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