Account Security / Account Takeover / Fraud Prevention

Here’s How to Stop Attackers from Exploiting Taxpayers

April 13, 20224 min Read

tax attack

Manipulation of tax returns by duping consumers and the Internal Revenue Services is called Tax Fraud. When the deadline to file tax returns approaches in the U.S., taxpayers scramble to file their returns and attackers are upping their game to cheat gullible citizens through various attack tactics. Are your fraud defenses robust enough to fend off the attacks this tax season?

The week preceding the deadline to file taxes in the U.S. is a period of frenetic activity for taxpayers – and bad actors, who exploit the stress associated with filing returns to make money at the taxpayers’ expense.

Attackers target consumers and providers

The modus operandi for tax fraud is simple, with attackers relying heavily on social engineering. They make phone calls or send emails – seemingly originating from the tax department – to pressure consumers into ‘paying taxes’ on fake websites or sharing personal and tax-related information. These phony calls and phishing emails have evolved over a period of time, making it difficult for an average consumer to identify them as fake or manipulative.

However, it is not just consumers whom attackers target; payroll offices, financial services and tax preparers are on the hit list, too. The only difference is that attackers begin targeting these services as early as January. Attackers use malware or pose as authorized senior executives to access copies of employees’ W2 forms. Once they have the information, it becomes easier to steal identities and execute tax fraud.

Attacks have become easier with online filing

During the tax season, many uncertified tax preparers suddenly spring up, which can pose a serious risk to the taxpayers. These tax preparers may be bad actors in disguise, trying to steal consumers’ tax information or, worse, using their own account details instead of that of the taxpayers to receive the refund amounts.

With digital taking the center seat in our lives, filing returns has also gone online with many taxpayers opting for the online route. Tech-savvy bad actors couldn’t have asked for a better deal as they can use the anonymity of the internet and easy availability of commoditized tools to impersonate legitimate consumers and divert the tax refunds to their own accounts. They will also look to exploit the huge backlog of millions of returns from the previous year to benefit from several tax rebates including income tax credit, child tax credit, recovery rebate credit, and employment benefits, among others.

Attackers can attempt account takeover attacks to break into tax preparers’ networks and taxpayers’ online accounts to manipulate them for tax fraud. For instance, on successful takeover of consumer’s tax accounts, attackers can change the bank account details with their own to reroute the funds. Similarly, attackers can stitch together stolen and fake details to create synthetic identities, which they can then use to make fraudulent new accounts. Attackers deploy bots to create new accounts in hordes, allowing them to file several fake tax returns and gain illegitimate refunds many times over.

Bad actors also engage in VAT fraud, by setting up and registering non-existent companies for fake VAT refund claims. They shut down these fake shops soon after receiving the refunds to avoid getting caught. Over the years, attackers have increased the use of fake invoices to claim illegitimate ITC credit.

During the run-up to Tax Day, fintechs and digitally-enabled service providers that help consumers file their tax returns are most vulnerable to targeted attacks. Many service providers either lack adequate security or use outdated solutions that are no match to the evolved attack tactics that attackers use today. These service providers need robust solutions to be able to effectively safeguard the entry points – logins and new account registrations – and protect their consumers’ information and account security.

Stay a step ahead of tax fraud with Arkose Labs

Arkose Labs is a trusted partner for many global financial service providers when it comes to long-term protection from evolving tax fraud tactics. Arkose Labs continuously monitors the incoming traffic to stop bad actors right at the entry gates. We do this using real-time risk assessment of every user and challenging suspicious traffic with our proprietary 3D puzzles.

While legitimate users can clear the challenges easily, bots and scripts fail instantly. Malicious human users face far more puzzles that keep increasing in complexity. This increase in volume and complexity prevents them from clearing the challenges at scale. They are required to invest more time and resources, which erodes the returns and makes the attack not worthwhile. The attackers are, therefore, forced to abandon the attack and move on, while good users can continue to file their taxes without disruption.

To learn how Arkose Labs helps fintechs and other financial services providers take effective fraud prevention measures to fight tax fraud during this hectic period, please book a demo now.