When you think of “tax fraud,” you probably think of people who find ways not to file their taxes honestly. But with the advancement of AI, there’s a new type of tax fraud out there. This one involves hackers using a form of identity hijacking to file a tax return in someone else’s name and get the refund sent to them.
The dark web is revealing that tax fraud is on the rise. Here’s what you need to look out for to avoid becoming a victim.
What is AI-powered fraud and identity hijacking?
AI-powered fraud is when hackers utilize AI’s abilities to commit sophisticated acts of fraud. One type of AI-powered fraud is known as identity hijacking, which is when hackers not only steal someone’s identity but impersonate them in all sorts of ways. One example is through deepfakes, which can have scary consequences for more than just the person being impersonated.
Another is through AI-tax fraud, which is when the hacker uses AI to take your sensitive information and use it to ultimately get your tax return sent to them.
But, how exactly do they do this?
MORE: DON’T FALL FOR THESE SNEAKY TAX SCAMS THAT ARE OUT TO STEAL YOUR IDENTITY AND MONEY
How fraudsters are using AI to commit tax fraud
This new type of tax fraud was reported by the CEO of LexisNexis Risk Solutions’ Government group, Haywood Talcove, a cybersecurity and data analysis company.
The acceleration of fraud through AI
Historically, tax fraud has involved the use of stolen (PII) Personally Identifiable Information, which refers to data that can be used to identify you. It includes both sensitive and non-sensitive information.
Sensitive PII: Full name, Social Security Number (SSN), driver’s license, mailing address, credit card details, passport information, financial records, and medical history. Companies often use anonymization techniques to protect sensitive PII when sharing data.
Non-sensitive PII: Zip code, race, gender, date of birth, and even information available on social media sites. While non-sensitive PII is less critical, it can still contribute to identifying you.
Thanks to AI, criminals can now more efficiently exploit stolen (PII) Personally Identifiable Information for fraudulent activities.
The process: From PII theft to fake IDs
Hackers may acquire PII through various means, such as phishing scams or malware. This information is then used to create fraudulent IDs, complete with the victim’s details but the fraudster’s photograph.
Exploiting facial recognition for IRS access
With a fake ID in hand, fraudsters can bypass the IRS’s facial recognition security measures, allowing them to file tax returns in the victim’s name and redirect refunds to their accounts.
Watch the latest episode of The CyberGuy Report.
Missed this event? Sign up via the registration form and see our live recording.
See Kurt’s latest Amazon picks for useful gadgets, smart home upgrades and everyday tech worth grabbing while the deals last.
The call for enhanced verification measures
Experts are urging government agencies to implement more robust verification processes, such as cross-referencing IDs with DMV records, to combat this sophisticated form of tax fraud.
MORE: WHY YOU SHOULD NEVER CARRY THESE THINGS IN YOUR WALLET
How to determine if someone filed a tax return in your name
When the IRS identifies issues with your tax return, they will send you a letter before issuing any refunds. This notification provides an opportunity for you to flag the initial return as fraudulent and proceed with filing normally.
The IRS employs systems to detect suspicious returns. However, if their algorithms fail to identify anomalies and process a fraudulent return, you won’t discover it until you attempt to file your own return and encounter rejection.
In most cases, the second option is more common. Taxpayers typically receive an e-file rejection notice, which indicates a problem. Unfortunately, these notifications lack specific details. Instead, they merely highlight an issue related to the Social Security number. If you haven’t accidentally transposed any digits, it’s likely that tax identity theft caused the rejection.
What happens after the scammer files a fake tax return in your name?
The primary consequence of a fake tax return is the theft of your tax refund. The scammer essentially impersonates you and diverts your rightful return into their bank account. But the trouble doesn’t stop there. When you try to file your legitimate return, the IRS system will likely reject it due to a duplicate filing. This throws you into a bureaucratic maze to resolve the issue and prove your identity.
Adding to the frustration, tax identity theft is a growing crime, and the IRS processes for resolving these situations are still evolving. This can mean extended delays and uncertainty while you straighten things out.
MORE: HOW IMPOSTERS ARE TRYING TO EXPLOIT YOUR GRIEF AND WALLET IN A NEW FUNERAL SCAM
6 ways to protect yourself from AI-tax fraud
Again, since this is a relatively new scam, cybersecurity experts are still learning a lot about what it looks like and, therefore, how to mitigate it. However, now that you are aware it’s out there, here are 6 things you can do to keep yourself safe.
1) File your taxes as early as possible. If you beat them to it, they can’t commit the fraud.
2) Never share your personal information—especially your Social Security number or other PII information—on messaging apps or during a phone call with someone you don’t know. Many phishing attempts lead people to give this information away before they’ve even realized what has happened.
3) Use strong passwords and reset them often. Create strong passwords for your accounts and devices, and avoid using the same password for multiple online accounts. Consider using a password manager to securely store and generate complex passwords. It will help you to create unique and difficult-to-crack passwords that a hacker could never guess.
4) Use an identity theft protection service: Using an identity theft protection service can be a crucial step in safeguarding yourself against tax fraud. Identity Theft companies can monitor personal information like your Social Security Number (SSN), phone number, and email address and alert you if it is being sold on the dark web or being used to open an acount. They can also assist you in freezing your bank and credit card accounts to prevent further unauthorized use by criminals.
Exclusive CyberGuy deal: Save up to 68% today: Get Aura’s award-winning identity theft protection and credit monitoring for as low as $9/month when billed annually.
5) Don’t click on links or files when you don’t know what they are, even if they are from a trusted friend. That friend could have been hacked, and now they are after you.The best way to protect yourself from clicking malicious links that install malware that may get access to your private information is to have antivirus protection installed on all your devices. This can also alert you of any phishing emails or ransomware scams.
COVERAGE
EXCLUSIVE CYBERGUY DEAL: 58% off (year 1) Please note that the above product is the core antivirus product. Norton may try to upsell additional products, but we don’t recommend them. We encourage you to decline those offers.
6) Do your best to make sure your sensitive data is not easy to find online. While no service promises to remove all your data from the internet, having a removal service is great if you want to constantly monitor and automate the process of removing your information from hundreds of sites continuously over a longer period of time.
Exclusive Deal for CyberGuy Readers (60% off): Incogni offers a 30-day, money-back guarantee and applies a special CyberGuy discount to all annual plans, for as low as $6.39/month for one person (billed annually) or $13.19/month for your family (up to 5 people) on their annual plan.
I strongly recommend the family plan. Here's why: the scam that starts with a Google search of your name almost always ends with a call to you, your elderly parent or a text to your adult child. Protecting yourself without protecting the people around you is half a solution. At $2.64 per person per month, the family plan covers up to five people, and the people most likely to be the final target are often the ones who'd never think to protect themselves.
Get Incogni and remove your info
If you suspect you’ve been a victim of tax fraud, the official IRS website provides step-by-step guidance on how to handle the situation.
Kurt’s key takeaways
It’s no doubt scary to think about all the different ways hackers and scammers can take advantage of you. And, because AI is making their work easier, it’s hard to keep up. What will they think of next? That’s why here at CyberGuy, we do our best to keep you up to date on the latest hacking news so you can stay one step ahead of the crooks.
In light of the growing threat of AI-powered fraud, what additional security measures do you think the government should implement to safeguard your personal information? Let us know in the comments below.
TO GET MORE OF MY SECURITY ALERTS, SUBSCRIBE TO MY FREE CYBERGUY REPORT NEWSLETTER
Copyright 2025 CyberGuy.com. All rights reserved. CyberGuy.com articles and content may contain affiliate links that earn a commission when purchases are made.
🎙 Now Streaming: My New Podcast: The CyberGuy Report
Kurt’s Top Deals
Deals move fast and inventory can be limited, so don’t wait too long.
| 🔥 Editor’s pick  Summer entertaining Ninja SLUSHi Machine (26% off) Frozen drinks and slushies at home in minutes. | |
| 💰 Top deal  Outdoor essential TYPEC Solar Bug Zapper (36% off) Solar-powered bug zappers for patios and camping. |
1 comment
The best way to protect against tax filing fraud is to have the IRS send you a PIN. Then if someone tries to file under your SSN without the correct PIN, they will not process the fraudulent attempt. Do the PIN!!!!!