In a world where we are growing increasingly dependent on technology, identity theft is a very real and relevant concern. This issue is having an increased impact on tax filings, which the Internal Revenue Service (IRS) refers to as “tax-related identity theft.”
What Is It?
Tax-related identity theft occurs when someone uses a stolen Social Security Number (SSN) to file a false tax return in hopes of fraudulently receiving a refund. When the actual person attempts to file their return, they are informed that a return has already been filed with their Social Security number. Their return is either rejected from electronic filing or they receive a notice in the mail from the IRS notifying them of an issue.
From January to November 2015, the IRS rejected or suspended 4.8 million suspicious returns before or during processing, with 1.4 million (totaling $8 billion in fraudulent refunds) of the cases confirmed as fraud as of January 2016. In addition, from January 2016 to March 5, 2016, out of 42,148 fraudulently filed returns claiming $227 million in refunds, the IRS prevented 79.6% ($180.6 million) of those refund claims from being issued.
What Is The IRS Doing to Respond and How Is It Working?
The IRS has stated that combating tax-related identity theft is a top priority. In June 2015, a special initiative was undertaken by the IRS, state revenue departments and private-sector tax industry leaders to come up with recommendations to protect taxpayers and safeguard the integrity of the federal and state tax systems. As a result of their initial meeting, three groups were formed specializing in authentication, information sharing and cybersecurity.
In October 2015, the following updates were provided on the progress made by each group:
The group identified and successfully tested inclusion of more than 20 new data elements from tax return submissions to be shared with the IRS and the states to assist in detecting and preventing identity theft returns.
Agreed on the need to create an Information Sharing and Analysis Center that will centralize, standardize and enhance data compilation and analysis to facilitate sharing actionable data and information. The target date for operations is filing season 2017.
Tax industry participants agreed to align with the IRS and the states under the National Institute of Standards and Technology (NIST) cybersecurity framework to promote the protection of information technology (IT) infrastructure.
How Can You Help Protect Your Identity?
Secure & Encrypt
To protect your identify, always use security software with firewall and anti-virus protections. Make sure the security software is always turned on and can automatically update. Encrypt sensitive files such as tax records you store on your computer using strong passwords.
Recognize & Avoid
Learn to recognize and avoid phishing emails, threatening calls, and texts from thieves posing as legitimate organizations such as your bank, credit card company or even the IRS. Be careful not to click on links or download attachments from unknown or suspicious emails.
Protect & Safeguard
Protect your personal data. Don’t routinely carry your Social Security card, and make sure your tax records are secure. Treat your personal information like you do your cash by not leaving them lying around.
What Are the Signs You May Be a Victim?
Be aware that if you are contacted by the IRS or your tax professional about any of the following, you may be at-risk for tax-related identity theft:
- More than one tax return was filed using your Social Security number.
- You owe additional tax, your refund has been offset, or you have had collection actions taken against you for a year you did not file a tax return.
- IRS records indicate you received wages or other income from an employer for whom you did not work.
What Should You Do If You Suspect You’re a Victim?
The IRS recommends taking the following steps if you believe you may be a victim of tax-related identity theft:
- File a complaint with the FTC at identitytheft.gov.
- Contact one of the three major credit bureaus to place a ‘fraud alert’ on your credit records.
- Contact your financial institutions, and close any financial or credit accounts opened without your permission or tampered with by identity thieves.
- If your Social Security number is compromised and you know or suspect you are a victim of tax-related identity theft, additional steps are recommended:
- Respond immediately to any IRS notice; call the number provided or, if instructed, go to www.irs.gov/identity-theft-fraud-scams/idverify.
- Complete IRS Form 14039, Identity Theft Affidavit, if your e-filed return rejects because of a duplicate filing under your SSN or you are instructed to do so.
- Continue to pay your taxes and file your tax return, even if you must do so by paper.
Millions of individuals are victims of identity theft in the United States each year. In addition to understanding the signs and taking preventative action, it is recommended that individuals reach out to a tax professional for assistance if they feel they may be at risk for tax-related identity theft.