During the busy season, tax identity theft becomes a major issue as identity thieves seek out tax returns as their primary target. Considering that the IRS processes tax refunds every year that amount to billions of dollars, criminals simply have to follow the money. To file a fraudulent tax return and pocket your money, all a thief needs is a little more than your first and last name and your Social Security number (SSN). Once this is complete, when you go to file your actual return, the IRS or state tax authority flags you as having already filed your tax returns for the year—you will appear as the duplicate filer. The resolution process can take months, cause a slew of unnecessary headaches, and delay any legitimate refunds you were expected to receive that year.
It has also become increasingly common for identity thieves to target large entities—like corporations, partnerships, estates, and trusts—by using stolen information to file forged tax returns. When targeting these entities, criminals will even go as far as attempting to steal employee data to help them in executing individual identity theft.
The IRS is Taking More Action on Theft
Due to the IRS taking more action in recent years, tax-related identity theft has substantially declined. For example, the IRS has worked to improve their computer systems by adding filters that can flag potentially fraudulent returns. The new system will look for anomalies in the filer’s information, such as wage information that differs from what was provided by the employer or substantial differences in an individual’s return from one year to the next.
In addition, online tax preparers and software companies have implemented new measures to ramp up security when it comes to confirming their customers’ identities. These new measures include techniques like multifactor identification—like password plus a text code sent to a user’s cell phone—to help verify their identity. From a business standpoint, the IRS now requires preparers to provide additional information to confirm that any return they submit is legitimate.
While these efforts have proven to be effective, tax identity theft still remains a threat. This threat of theft is why it is still so important to take the proper precautions to protect yourself.
In the case of individuals, the key to preventing any type of identity theft is to keep your SSN private. It is recommended that you never carry your Social Security card with you and never share your SSN with anyone unless absolutely necessary. Also, never provide your SSN via email, even in legitimate scenarios.
It is imperative to be on the lookout for phishing emails. These official-looking communications are specifically designed to look like they were sent by the IRS, your financial institution, or an executive at your company. However, these emails are actually from criminals and thieves in search of your SSN, bank account information, or personal passwords. You should never click on any links or attachments in emails unless you have verified that they are legitimate. Remember, your bank, the IRS, or any other legitimate business would never ask for your financials or additional personal information via email.
Here are some other steps you can take to protect yourself:
- Choose strong passwords for your computers, mobile devices, and financial websites and always change them regularly.
- Use proper antispam and antivirus software on your computers and ensure that you periodically check for security updates.
- On a regular basis, reconcile your bank and brokerage statements and review them for any potentially suspicious activity.
- Store bank statements and tax documents in a secure space when necessary, but shred them when they are no longer in use.
- Periodically review your credit report to check for any suspicious activity.
- After checking your mail daily, be sure to lock your mailbox and shred all credit card solicitations and any other mail that thieves could potentially use to obtain your SSN or personal information.
- When using public wi-fi networks, always exercise caution. If you have the ability, use a virtual private network (VPN) service to protect and encrypt all of the information that you transmit over the network.
Finally, consider filing your return as early as you can. If someone is able to obtain your SSN and attempts to file a fraudulent tax return in your place, filing first will prevent them from being able to claim a refund in your name.
It is essential that businesses take the proper steps to protect not only their own information but also the information of their employees. If you are a business owner, it would be beneficial to provide training to employees to help educate them on recent tax fraud schemes and how they can spot phishing emails. This training could also cover how to use secure methods to send W-2 forms to employees and how to implement new risk management strategies designed to flag suspicious activity and communications.
How to Respond to Theft
If you believe that you are a victim of tax identity theft:
- Begin by filing a complaint with the Federal Trade Commission (identitytheft.gov) and your local law enforcement.
- Contact your tax advisor, the IRS, and the three major credit bureaus to place a “fraud alert” on your credit records.
- Be sure to submit an Identity Theft Affidavit (Form 14039) to the IRS. After filing this form, you will receive a six-digit Identity Protection Personal Identification Number (IP PIN) for use in filing your electronic or paper returns.
It would also be beneficial to contact your financial institutions and close any accounts that you believe may have been compromised or opened without your knowledge. If this is the case, be sure to reach out to your local CRI tax advisor for more help on properly responding to tax identity theft.