Tax Related Identity Theft Can Happen to Anyone
It’s that time again for your annual trip to the financial dentist. Tax time.
After the countless hours compiling documents and completing forms, you file the return and look forward to the refund.
You receive a letter from the IRS politely telling you that your tax refund has already been processed.
Welcome to tax-related identity theft. You’ve just found yourself alongside the millions of hard working Americans that annually fall victim to this growing problem. Every year, billions of dollars in U.S. income is reported falsely.
If There is Good News… You Will Get Your Refund
Tax-related identity theft occurs when someone uses your stolen Social Security number to file a fraudulent tax return under your name.
If you’re lucky, you will receive a letter from the IRS telling you it suspects a fraudulent tax return has been filed under your name. Otherwise, you’ll find out once you’ve filed. Either way, you have some annoying and potentially time-consuming work ahead to clear up the problem.
Here’s the good news: You will eventually get the refund due you from the IRS and/or your state.
What’s troubling is how easy the IRS makes it for thieves to file your return with fraudulent information. Technically, all a thief needs to file is a name, Social Security number (SSN) and date of birth. And, if you’ve read our other posts, we know of at least one company that accidentally let hundreds of thousands of those slip out last year. Unfortunately, security breaches happen too often.
Like anything else, an ounce of prevention is worth a pound of cure.
The most effective way to lower your risk for tax-related identity theft is to file early.
If you don’t, you can be assured the thieves will. For them, the earlier they file, the earlier they get your refund in their hands. At that point you’re faced with a battle you will ultimately win, but will take time.
So, if this happens to you, we have compiled seven things you need to do to get the problem cleared up as soon as possible so your refund can be paid.
So, take a deep breath, relax and review the steps.
Step #1: Report the Refund Theft Immediately
Call the IRS Identity Protection Specialized Unit at 1-800-908-4490. You’ll also need to complete an identity theft affidavit, or a 14039 Form, so that the IRS can place an alert on your account. All of this can also be done online at https://www.irs.gov/pub/irs-pdf/f14039.pdf.
Also, don’t forget to contact your state revenue or taxing. After all, identity thieves can and will do a significant amount of damage with your Social Security number. You only get one.
Lastly, report the theft to your local police department. While law enforcement is unlikely to investigate the crime because it’s typically a Federal matter, many government agencies and credit bureaus require an official police theft report to help finalize the issue.
Step #2: Compile Your Evidence
When you contact the IRS or state agency about your ID tax return theft that be sure to have copies of your tax returns from the past two or three years. There will be numerous questions throughout this process, and this will ensure you less stress, as well as allow your case to move faster.
In addition, by providing this supplemental information that the IRS can check against, you strengthen your case that the theft of your return is the legitimate one. For example, an ID thief is unlikely to know that you got divorced two years ago and stopped filing jointly, but this fact can easily be checked by the IRS, giving your filed return more credibility.
There are other pieces of information you’ll want to have handy: driver’s license, birth certificate, passport, and if so, two recent utility bills. Plus, if you’re married, have your marriage certificate. You’ll need to mail copies of all these documents as well as your police report for the IRS to verify your tax return and come to conclude that the other one is fraudulent.
Step #3: Protect Yourself for The Future
Once you report the fraud and fill out the affidavit, the IRS should issue you a personal identification number, or PIN, to provide another layer of security. You’ll need to submit this PIN along with your Social Security number when you file any tax form going forward so that the IRS knows to carefully check over your account. Since the government can’t give you a new Social Security number, this is how you’ll protect yourself. As an identity theft victim, you’ll get a new PIN every year.
If you live in the tax fraud meccas of Florida, Georgia, or Washington D.C., you can apply for a PIN without having been an ID theft victim. To get this six-digit number, you need to register and verify your identity online. You can sign up here: https://www.irs.gov.
Remember, as technology moves along, we need to keep in mind that our phones, tablets, and computers are easy prey for identity thieves. IRS studies show that fraud alerts are often linked to a phone number. Therefore, your tax refund criminals along with other ID thieves constantly attempt to access their victims’ cell phone accounts to redirect those messages to them. Protect your smartphone:
- Ignore unknown numbers that could harbor malware.
- Be very careful when downloading applications and disable those you don’t use.
- Make sure you also have an email address attached to fraud alerts and other ID theft-worthy news.
Protecting your records is a year-round effort. For example: Don’t carry your Social Security card or other documents with your Social Security Number on them. Only provide your SSN if it’s necessary and/or you know the person requesting it. If you do the following you will have the best chance of staying ahead of thieves: protect your computers with anti-spam and anti-virus software, and routinely change passwords for your accounts, you’ll give yourself a much greater chance to keep your refund just to yourself.
Finally, don’t fall for phishing scams. The IRS will NEVER call you to demand immediate payment, nor will it call about taxes owed without first mailing you a bill. Any type of threatening phone call from someone claiming to be from the IRS is a hoax and should be reported to the police.
Step #4: Contact the Credit Bureaus
If you are a victim of identity theft, the Federal Trade Commission recommends contacting one of the three major credit bureaus to place a fraud alert on your credit records immediately:
- Equifax, www.Equifax.com, (800) 525-6285
- Experian, www.Experian.com, (888) 397-3742
- TransUnion, www.TransUnion.com, (800) 680-7289
If a thief had enough information about you to file a false tax return, he/she could have also opened new credit card accounts or taken out a loan in your name.
Set up free fraud alerts with the three major credit reporting bureaus, Equifax, Experian, and TransUnion. These alerts, which last 90 days, but can be renewed, warn potential creditors or lenders that you are an identity theft victim and that they must verify your identity before issuing credit.
You can even go a step further by placing a full credit freeze on your files, which instructs the credit agencies to prevent new creditors from viewing your credit score and report. With a police report, it’s free. Without one, it can cost as little as $10, depending on your state.
A credit freeze will keep you from accessing instant credit, too. So, if you need to apply for a loan, you will need to give the agency permission to access your data, and in some cases, you may have to pay a fee to lift the freeze, which can take a few days.
Step #5: Check Your Credit Reports
As an American consumer, you are entitled to a free copy of your credit report from each of the three agencies. Make sure you get in the habit of checking them carefully for unauthorized activity. Look at your history as well as recent activity. Just because you were the first person alerted to the problem through a false tax return does not mean that’s where the ID theft began.
If you see errors in your report, such as wrong personal information, accounts you didn’t open or debts you didn’t take part in, immediately notify your bank, one of the credit agencies, and the businesses reporting that inaccurate information.
Step #6: Change ALL Your Passwords
In the past, most thieves collected data about a taxpayer and then created an account at a tax preparation software site to file a false return. But Intuit, the parent company of TurboTax, says that in the past 18 months it has seen criminals changing their tactics.
Thieves know that people use the same password at multiple websites. This is one of the worst security mistakes we can make. When usernames and passwords are compromised in a data breach, a thief could use them to open a TurboTax account and file in your name.
If you have an online account at a site like TurboTax, make this password unique from any other passwords you use online. Follow this guide to make it as secure as possible. If you use your tax prep password at your bank or any other site with personal information, change that password immediately, as well as any other consistent accounts.
Step #7: Be Patient
The IRS says a typical case of ID theft can take up to 180 days to resolve. And even after you’ve cleared up this year’s tax mess, tax and credit fraud can be a recurring problem.
Once the IRS has determined that your return has been fraudulently filed, the IRS will flag the actual return that you file and process it manually, examining every detail to figure out which return is authentic. This means your refund will most likely be delayed for months.
Remember…The IRS will always pay you your refund, regardless of whether it already paid it out to a thief.
So, be proactive to protect yourself with security software with firewall and virus/malware protection. Also, only give personal information on encrypted websites. Look for “http” addresses, and use strong passwords to protect them.
And, if you do nothing else, don’t leave sensitive personal data lying around for wandering eyes to see. Treat it like cash!
IRS and States are Fighting Fire with Fire
While the bad guys always seem to be one step ahead of being caught, the IRS is having success in fighting tax-related identify theft. Annually it rejects or suspends processing of more than five million suspicious returns, which add up to more than $8 billion. Many changes are designed to better authenticate the taxpayer’s identity and the validity of the tax return at the time of filing.
The IRS has greatly improved its security for accounts by increasing the number of digits required for a password, as well as new security questions to verify identity. States are also fighting identity theft by requiring additional information that may be more difficult for thieves to acquire.
Last year, the number of suspicious electronic returns was so large in some states that Turbo Tax, one of the largest tax preparation software providers, temporarily suspended processing all state tax returns until it could block users from filing unlinked state returns, which are returns filed without a federal return.
For tax year 2017, the IRS, states, and the tax industry joined together to enact a few new safeguards to try and take additional actions to combat tax-related identity theft. Many of these safeguards will be unknown or invisible to us, but invaluable to their fight against these criminal organizations.
Visit your state’s tax agency website to see if there are changes for 2017 tax returns. (Although you may e-file your federal and state tax returns together, they are processed separately by the IRS and your state tax agency.)
If you have any questions, concerns, or tips, we’d love to hear from you.
And, stay safe out there!
John Steinhauser, co-owner, Secure Document Destruction of St. Louis (SDD).