Protect Yourself from Tax Identity Theft

The Daily Record, March 2016 As we move into the third month of the 2015 filing year, the IRS is seeing an abundance of tax return fraud attempts again this year. Just last month, the IRS warned that they are seeing a 400% increase in e-mail phishing schemes and malware incidents targeting both taxpayers and tax professionals. According to the Government Accountability Office, the IRS lost an estimated $5.8 billion to fraudulent refund claims in 2013, while blocking nearly $24 billion in attempts. These figures have continued to grow over the past few years. It was reported that tax return fraud is expected to reach $21 billion for the 2016 calendar year. Tax identity theft occurs when someone uses your stolen social security number to file a tax return claiming a fraudulent refund. The thief files early on in the filing season to receive the fraudulent refund before the victim files their return. With paperless e-filing, this scam is easier than ever to pull off. Thieves can simply make up false wages, submit the return electronically and receive the refund via mail or direct deposit. While the IRS does keep records of earned wages and other types of taxable income reported by taxpayers’ employers, they do not match these records to the information submitted electronically before issuing refund checks. By the time the IRS notifies the victim that it has received another tax return in their name, the thief is long gone and has already cashed the refund check.

Fraudulent tax returns in the news

Tax identity theft and fraudulent refund scams have become so widespread that it has been given its own federal government acronym: SIRF, for Stolen Identity Refund Fraud. Just recently, a man from Pennsylvania was indicted for using stolen identities to fraudulently deposit $1.6 million in tax refund checks into an account he owned. The perpetrator operated a cash checking, tax preparation, and money transfer business. He is accused of depositing at least 350 checks between January and November of 2013. Crimes like the one noted above have increasingly become perpetrated by sophisticated, organized individuals and/or groups. They are able to obtain a significant amount of personal information from sources outside of the IRS to use to file fraudulent returns. These events continue to raise many questions for taxpayers, including how to protect their personal information and whether it is safe to prepare and submit returns electronically.

How to prevent tax identity fraud

• The IRS continues to seek improved methods of processing tax returns to mitigate the risk of processing fraudulent refunds. These measures include:
• New security requirements when preparing taxes online, especially when signing into your tax software account.
• Some states may ask for additional identity information, such as your driver’s license number.
• Longer processing times. The IRS will still process nine out of 10 refunds within 21 days, but additional reviews will be done to ensure refunds are being properly issued.

The IRS intends to continue to strengthen the controls currently in place to help mitigate these risks. However, individual taxpayers also need to recognize the risks and know how to protect themselves. To reduce your risk of tax identity theft, the IRS published the following recommendations:

• Do not routinely carry your Social Security card or any document with your Social Security number on it.
• Do not give a business your social security number just because they ask. Only give it when absolutely necessary.
• Protect your personal financial information at home and on your computer.
• Check your credit report annually.
• Check your social security administration earnings statement annually.
• Protect your personal computers by using firewalls, anti-virus/spam software, update security patches and change passwords for internet accounts.
• Do not give personal information over the phone, through the mail or the Internet unless you have either initiated the contact or are sure you know who is asking.
• Always remember that the IRS does not initiate contact with taxpayers by email to request personal or financial information.
• Make sure all tax documents and paperwork are secured in a safe, locked location at all times.
• Sensitive documents kept on a computer should be locked with a password.
• Be selective about who works on your taxes. Investigate tax preparation companies with the Better Business Bureau, especially for new or seasonal offices.

What to do if your identity is stolen

If you do become a victim of tax identity fraud, the IRS recommends following the steps below for reporting the incident:

• File a report with the local police.
• File a complaint with the Federal Trade Commission at www.identitytheft.gov or the FTC Identity Theft Hotline at 1-877-438-4338.
• Contact one of the three major credit bureaus (Equifax, Experian, or TransUnion) to place a fraud alert on your credit reports.
• Close any accounts opened without your permission or tampered with.
• Respond immediately to any IRS notice and call the number provided.
• Complete IRS Form 14039, Identity Theft Affidavit.
• Continue to pay your taxes and file your tax return, even if you must do so by paper.

Stay Proactive

As this year’s tax deadline approaches, it is important to take the necessary steps to protect yourself and your personal information to help mitigate your risk of tax identity fraud. Fraudsters continue to expand their methods for stealing personal information, so we must remain vigilant in how we secure this data.