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Tax time is ID theft time

By Kay Bell · Bankrate.com
Thursday, January 31, 2013
Posted: 3 pm ET

The Internal Revenue Service began accepting 2012 tax returns this week, sending thousands of individual taxpayers and tax professionals to their computers to fill out forms and then e-file them.

You, however, are an electronic tax-filing holdout. You've heard the reports about all the tax-related identity theft. So you're still sending Uncle Sam your tax data on paper.

You might want to reconsider.

Yes, tax-time identity theft is a growing problem. A Government Accountability Office, or GAO, investigation last fall found that as of Sept. 30, 2012, the IRS had identified almost 642,000 incidents of identity theft.

Worse, according to the GAO, the IRS does not know the full extent of tax-filing ID theft. While the agency keeps count of the occurrences it discovers, it does not estimate the number of identity theft cases that go undetected.

Worst, the ID thieves are getting away with it. Unless the IRS pursues a criminal investigation, says the GAO, the feds generally do not know the real identity of the thieves.

But while the identity thieves do e-file fraudulent returns using stolen information from real taxpayers, the security breach that allowed them to get the info generally doesn't come from the e-filing system.

"For the most part, there is not substantially more risk for e-filing," says Denis G. Kelly, president of IDCuffs.com, an identity theft prevention and protection company. "In fact, when the check-clearing process was changed from physical checks to digital checks, the percentage of fraud decreased. The consensus for this decrease is the number of eyes that see checks in the process was significantly reduced."

So those thieving eyes get your tax and personal financial information from other sources and then use it to file a fake tax return in your name, usually tweaking the numbers to get a large refund.

And you, the taxpayer whose ID has been stolen, don't find out about it until you file your own 1040 and are told by the IRS that they already sent you your refund.

Jay Foley, a partner at ID Theft Info Source in San Diego, says a major problem is where a taxpayer's personal data is stored.

Reports of former tax preparation firm employees stealing client data is not uncommon, says Foley. "If I were an identity thief, I'd find a CPA office, steal a copy of his files and dummy up tax returns and shoot them through before his clients file. Tax thieves will shoot off a thousand returns. If they only get 200 back as fraudulent refunds, that's great. That's still 200 more than they had to begin with."

So what can you do to prevent tax-related identity theft? The same thing, say security experts at TrustedID, that you do at nontax time:

  • Don't talk to strangers. File your taxes with a reputable tax professional or use legitimate tax prep software programs.
  • Don't fall for phishing schemes. The IRS does not initiate communications with taxpayers via email or phone. So that urgent email message about a possible refund is probably a scam.
  • Do update your computer spyware and firewall. If you do open a malicious email, it could protect you from malware designed to steal your personal information.

Go ahead and e-file, and soon.

"An argument could be made that e-filing actually decreases the rate of tax identity theft," says Kelly, in part because it reduces the number of possible criminals who handle your return and see your personal data.

Plus, says Kelly, "the absolute best tactic to prevent a criminal from stealing your tax refund is to file before them."

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7 Comments
GD
February 12, 2013 at 9:41 am

@LB: Try contacting either The Identity Theft Council-Victim Support Network or The Identity Theft Resource Center (ITRC). Both seem to be nonprofit organizations that provide free counseling services to identity theft victims. (I say "seem to be" because I hadn't heard of either until I saw a reference in the article "Identity Theft Not as Funny as in the Movies" on Today's website, though that reference was to "Identity Theft Resource Council" which seems to be a combination of the two above, according to my 5-minute Google search. So make sure to check them out before dealing with them, and be wary if they ask you for your personal identifying information.) I hope you get your life back in order soon.

Blusue
February 10, 2013 at 3:39 pm

I was a victim of this last year after my purse was stolen at gunpoint on a sunny afternoonn in front of TraderJoes in Stockton. I normally did not carry my SS card, but I was looking for work and so it was in my wallet. I notified the credit agencies and froze my credit for 90 days (anyone can do this, for no particular reason) however it never occurred to me to contact the IRS. When the email message from the online tax prep company said "this return has already been filed" I sat stunned, feeling like I was being robbed all over again. I just received my 2011 return in Dec.

Patrick
February 05, 2013 at 3:16 pm

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Id theft Protection

EB
February 02, 2013 at 10:26 am

I had the great misfortune of becoming a tax fraud victim last year after returning from an overseas deployment. I attempted to use one of the popular efile software programs and received the typical "rejected" message, late January 2011.

In short, I acted quickly and filed my affidavit and paper return with the IRS. I kept copious notes to include date, time, customer service rep, etc. Fortunately, I received my 2011 return fairly quickly, at least in comparison to other stories featured in the news. I received my return (with interest!) Sept 2012.

In December, I received the 6-digit IP Pin from the IRS. I attempted to efile again; however, you must use your data (either your 2011 AGI or personal info) via the IRS site to obtain an additional 5-digit identity verification pin, specifically for efiling. While I appreciate the added layer of security, its pointless when the IRS cannot confirm my identity. They are still conflating MY ACTUAL data with that of the jerks who filed in my name first place.

Thus, I must go through the process of confirming who I am - AGAIN, even though I have my unique 6-digit number to facilitate my tax return process like the other 80% of Americans, I must resort to the antiquated paper filing method. True, it may be more "secure" to some... but now I must constantly prove my identity to the very people who released my return to some schmuck in error in the first place.

I guess you could that you are never a one-time victim of tax fraud. The criminal and the IRS will find ways to continually make your life hell.

LB
February 01, 2013 at 4:51 pm

TODAY WE CANT EVEN GET INTO ANY OF OUR ACCOUNTS, THEY WONT GIVE US ANY INFO EATHER.

LB
February 01, 2013 at 4:44 pm

I HAVE JUST GOT TWO LETTER'S LETTING US KNOW THAT MYSELF, AND HUSBAND AND ALL CHILDREN HAVE BEEN ID AND BANK ACCOUNT THEFT. AND WE E FILED LAST YEAR. NOW WHAT???????