I tried to think of a snappy title to this post, but the truth is, identity theft is serious s#$%, and when combined with income tax fraud, it can be financially and emotionally devastating, so I’ll skip the levity and get right to it.
Tax return identity theft is when someone uses a taxpayer’s personal information (name, social security number) to file a fraudulent return to claim refunds on that return. The returns are usually filed early in the filing season, before most taxpayers have received all of the W-2s and 1099s they’re expecting. Taxpayers are usually unaware that anything has happened until they file their return, and then receive a notice from IRS that a return was already filed with the taxpayer’s social security number. In 2011, approximately 75% of all returns filed had refunds due, averaging about $3,000. In May 2012, IRS had identified about 2.6 million returns for possible identity theft, and they recently reported about 450,000 active identity theft cases.
IRS’s Publication 4535 (Identity Theft Prevention and Victim Assistance) states that people who have had their identity stolen can spend months or years (and their hard earned money) repairing their good name and credit record, and may lose job opportunities, be refused loans, education, housing or transportation, and may even be arrested for crimes they didn’t commit! An immediate result of a fraudulently filed return by an identity thief is the delay of a refund due, from the legitimately filed return, until IRS can sort things out with the real taxpayer.
What steps can you take to minimize becoming a victim of tax return identity theft, or other identity theft?
-Don’t carry your Social Security card with you, or any document with your SSN on it.
-Don’t give out your Social Security number to any business, just because they ask for it. Question why it’s needed and how it will be used.
-Check your credit report at least every 12 months.
-Secure your personal information at home, and get yourself a shredder. Shred everything that you think has anything remotely resembling personal information, including unsolicited credit card offers.
-Protect your personal computers with firewalls and anti-spam/virus software, and regularly change passwords for accounts with sensitive information (such as banks, brokers, credit cards).
-Don’t give out personal information over the phone, by mail, or on the internet unless you are the one who initiated contact or you’re sure you know who is asking. And remember, IRS will NEVER contact taxpayers by email, so if you receive an email that says it’s from IRS, forward it to firstname.lastname@example.org to alert IRS.
-Whenever possible, ask for masked SSNs on insurance cards or any other place where the SSN is used as an identifying number. Beginning this tax season, my tax software vendor is enabling me to mask SSNs on returns. You can bet that I’ll use this feature on every client return copy that I send out, plus the pdf file will be passworded.
What do you do if you find that your identity has been stolen (either via a fraudulent tax return or otherwise)?
-Contact the Federal Trade Commission at ftc.gov/complaint.
-File a report with the local police.
-Close any affected bank or credit card accounts.
-Inform the major credit bureaus, and consider putting a freeze on the accounts.
-Contact the IRS Identity Protection Specialized Unit at 800-908-4490. They will have you file Form 14039 (Identity Theft Affidavit).
-Respond to all IRS notices you receive in the mail, using the phone numbers listed on the notice.
As with any crime, identity theft can be a harrowing experience. I hope this information helps, and please forward it along to anybody you feel might benefit from the information I’ve provided.