Identity theft has become a growing problem in the U.S., and tax season is prime season for Americans to have their information and finances compromised.
During the first nine months of 2012, the IRS identified 641,690 incidents of tax-related identity theft, a significant increase from the 47,730 reported claims in 2008. There are two basic ways that tax fraud occurs: scammers use your personal information to redirect your tax return to them, or they use your Social Security number to get jobs or loans.
Someone can commit either of these crimes just knowing a Social Security number, says Joe Reynolds, identity fraud product manager at Travelers. Scammers get their hands on personal data through a variety of ways, including breaking and entering a home or car and stealing mail or a W2 form. “The biggest way you can become a victim of fraud is by not protecting your physical info,” says Reynolds.
Consumers need to be weary of providing your personal information to any third parties, particularly your Social Security number,” says Trey Loughra, president of Equifax Personal Information Solutions. “Someone can’t commit tax fraud on you without your Social Security number.”
Here’s what experts suggest tips on what you can do to prevent tax fraud this filing season.
File early. “People should file their tax returns as soon as possible,” says Reynolds. The sooner you file your return, the less opportunity someone else has to file a return in your name. After you file that return, opt for direct deposit so criminals can’t have it redirected to their address or steal it from your mailbox. If someone fraudulently files your claims before you, the IRS will send you a letter that you’ve already filed which will alert you that there’s a problem.
They can put a fictitious company and address and the check gets mailed to them. The W-2s don’t get sent to the IRS until the end of January and then the IRS matches them to the returns,” says certified public accountant Ernest Almonte.
Research all third-party providers. A little due diligence goes a long way when it comes to using online tools. “There are a lot of benefits to using electronic filing provided you’re comfortable with the website and the tax preparer,” says Reynolds. Before using any online filing application, review the privacy policies, how long your documents and information is stored and how it’s destroyed.
“Be picky about who you have doing your taxes because identity fraud rings might front as a tax preparing company,” says Reynolds. Before hiring someone to do your taxes, he suggests verifying their status with the Better Business Bureau and the Internal Revenue Service’s Office of Professional Responsibility.
Don’t respond to unsolicited emails. “The IRS will never initiate a contact with you through email,” says Almonte. If you receive an email claiming to be the IRS, call the agency directly.
Encrypt information in emails. Whenever possible, experts suggest physically handing your information to your tax preparer instead of through email. If you have to email it, always encrypt your files and only send this information to someone you trust.
“Don’t ever put your Social Security numbers and account numbers in a document in your email,” warns Almonte. If you include this information in an email, encrypt it and call the email recipient to tell them the password to open the files.
Loughra suggests also making sure your tax preparer receives your information—no matter the delivery method. “A tax fraudster would love to get that information to file a fake return and to use it for other purposes to compromise your identity, like opening up credit card accounts,” he adds.
Don’t sign blank forms. “Never sign a blank or incomplete tax return or one that your tax preparer has failed to sign,” says Reynolds. Since someone can use the blank form that’s signed to commit fraud, have the tax return completed first and then sign it only after you’ve reviewed it with your tax preparer.
Protect your mail and your information. “It’s not about the high-tech espionage stuff—it’s really about protecting your mail,” says Reynolds.
Keep this information along with other tax documents in a secure location like a safe or deposit box and don’t carry your Social Security card in your wallet. “If it’s on your computer, make sure the file’s password protected or encrypted.”
Double check your tax forms. When you receive your forms, make sure the income is really your income and not someone else’s, says Reynolds. “People who have a difficult time getting lawful employment will use your information to get lawful employment. They’ll defer their tax liability until the end of the year and pass that onto the victim.”
Also, your Social Security Statement identifies the income of people working in the U.S. under your number, says Reynolds. “This will allow you to know if someone is using your Social Security number to work so make sure the numbers look right.”
Review your credit report annually. “Under federal law, you’re allowed to check your credit report once a year for free,” says Loughra. If someone has compromised your taxes, they may have also used your identity for other purposes and this will show up in your credit report.
What do you do if your Identity has been stolen?
Contact the IRS at 1-800-908-4490, complete an IRS Identity Theft Affidavit (Form 14039) and call the credit bureaus and your credit card companies, says Almonte. The IRS will issue a temporary number.