Protect Yourself from Tax Return Identity Theft

Even if you are doing everything possible to protect yourself from fraud, such as, protecting your personal information, using antivirus software, and shredding every piece of paper containing your personal information, thieves have found new ways to obtain your identity.  The dramatic increase in tax related identity theft comes from thieves purchasing hundreds, even thousands, of taxpayer identities and using their information to file bogus tax returns in large batches.   These identities are made available by the recent data breaches and corrupt employees who have access to massive amounts of client and/or fellow employee data.  The business of selling personal information is quickly increasing; groups of data can be sold many times for a very large profit.  For these types of identity theft, there is little you can do to protect yourself.  Instead, the focus should be on awareness and knowing what to do if this happens to you.

The IRS has experienced a 66% increase from 2012 to 2013 in criminal investigations due to fraudulently filed tax returns. In tax year 2013, there were over 1,400 identity theft related leads relating to more than 391,000 tax returns which cumulatively claimed in excess of $1.3 billion in potentially fraudulent income tax refunds.

Who is at risk?

It is estimated that less than 1% of thieves are ever caught and less than 10% of them are prosecuted.  The sudden increase in identity theft cases indicates criminals recognize identity theft as a safe form of crime.  Thieves are naturally drawn to this seemingly low risk / high reward activity.

The most popular ways thieves gain access to information is through: computer- related crimes, lost/ stolen wallets, corrupt businesses or employees, and breaches of consumer data.  The thieves then use this information to file fraudulent tax returns.  Since so many identities are stolen through computer- related crimes, you may wonder if it is still safe to file your tax return electronically.  According to the IRS, the information is stolen outside of the tax system and they insist e-filing is still safe.  However, they recommend that after your tax return has been filed, you should store electronic copies on a CD or a flash drive and delete the tax return from your hard drive.

Young adults, the elderly, and the disabled seem to be the most frequent targets of fraudsters because they are the groups least likely to file tax returns.

How to protect yourself:

  1. Review credit card and bank statements monthly and be on the lookout for even the smallest charges.  A common strategy employed by many thieves is to steal small amounts of money from thousands of people.
  2. Never give out personal information unless you initiate the communication.
  3. Check your credit report frequently to catch problems faster.
  4. File your tax return early.

How will you know if you are a victim of tax related identity theft?

If you receive a notice from the IRS stating you have filed more than one tax return or that you have earned wages from an employer you do not recognize, this is a likely indication that there is a problem.

What to do if your information is stolen:

  1. Contact your tax professional and the IRS as soon as possible:
    • File Form 14039: Identity Theft Affidavit with the IRS.  Obtain a copy of your tax transcripts from the IRS.  IRS transcripts provide detail on past tax payments, taxes due, and tax return filing history.  There are five different types of transcripts, each of which can be helpful depending on the type of information needed.
  2. Check your credit :
    • Equifax, Experian, & TransUnion are the three major credit reporting agencies.  If you notice discrepancies or irregularities on your credit report, you should report them to the credit agency’s fraud center.  You only have to report the fraud to one agency and they will notify the other agencies.  You will also have to contact each of the fraudulently opened accounts to notify them that the debt is not yours and that your identity has been stolen.
  3.   File a report with your local police department and the Federal Trade Commission
  4. Change all of your passwords and contact your bank / credit card companies for new cards

Having your identity stolen can be very scary and resolving the problems identity theft can cause can be an extremely long and frustrating process, fortunately we can help.  Contact us if you feel you have become the next victim of identity theft.