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The Bottom Line is where Klatzkin’s advisors provide analysis and insight into key developments in taxation, accounting, and other issues and how they affect businesses and individual taxpayers.

Protect Yourself From Tax-Identity Theft

By Alfred G. Mueller

The Internal Revenue Service (IRS) officially opened the 2019 tax season on January 28, 2019. This is the day that the IRS began accepting paper and electronic tax returns. It is also the day identity thieves may begin to try to steal your money by filing your tax return. One of the best ways taxpayers can protect themselves from tax-related identity theft is to file early. The IRS only accepts one return per Social Security Number (SSN.

It is unfortunate that taxpayers even need to worry about tax-related identity theft. But they do, and more people are victimized each year. The IRS ranked identity theft third on its Dirty Dozen List of Tax Scams for 2018. Phishing and phone scams were number one and two, respectively. Nearly 60 million Americans have been affected by identity theft according to a 2018 online survey by The Harris Poll. That same survey indicates nearly 15 million consumers experienced identity theft in 2017.

Tax-related identity theft is one of the most common types of identity theft reported to the Federal Trade Commission (FTC). It accounted for 34% of reported incidents in 2018, down from 46% in 2015. The IRS is part of the Security Summit, which also includes state tax agencies and representatives from the tax community who joined together in a collaborative effort to fight identity theft tax return fraud. The IRS has made major improvements in detecting tax-related identity theft during the last two years.

Even so, the Identity Theft Resource Center counted a new record high of 1,579 data breaches, exposing more than 178 million records in 2017. The Equifax data breach alone exposed the names, SSNs, birthdates, addresses and, in some instances, driver’s license numbers for 147.9 million people.

Stealing your SSN and/or other personal data (address, birthdate, etc.) so it can be used to file a tax return is very profitable for fraudsters who are after a refund. The Government Accountability Office (GAO) reported that the IRS estimated that in 2016, criminals used false identities to try to claim billions of dollars in tax refunds. Although the IRS kept $10.5 billion out of the hands of fraudsters, criminals got at least $1.6 billion. It is important to note that the IRS paid out $5.2 billion in fraudulent refunds in 2013. So, the situation is improving.

Red Flags That You Have Been Victimized

Most people have no idea that they have been victimized until they file their tax return and it is rejected. As stated above, the IRS only accepts one return per SSN. Red flags that you may be a victim of tax-related identity theft include:

  • More than one tax return was filed using your SSN.
  • You owe additional tax, have a refund offset or have had a collection action taken against you for a year you did not file a tax return.
  • IRS records indicate you received wages or other income you did not work for.

How to Protect Yourself

There are many actions you can take to minimize your risk, including:

  • File your tax return as early as possible. Once the IRS processes a return with your SSN, it will reject any duplicates.
  • Opt for receiving your tax forms via e-delivery.
  • Do not respond to an e-mail or phone call from someone claiming to be from the IRS. The IRS contacts taxpayers by letter delivered by the U.S. Postal Service.
  • Select passwords that are difficult for someone to figure out.
  • Change all passwords at least once per year.
  • Make sure that your computer is protected by installing a security program and firewall.
  • Ensure your Wi-Fi is secure.
  • Never use public Wi-Fi if you are working with sensitive personal information.
  • Set the security settings for your internet browser at the highest level acceptable to you.
  • While surfing the internet, avoid clicking on links that you do not trust or appear questionable.
  • Do not share personal information such as your address or birthday on social media.
  • Review your credit reports annually from TransUnion, Experian and Equifax. Check to see if any unfamiliar or new accounts have been opened that you have not authorized.
  • Put a security freeze on your credit report to ensure that credit is not granted without your approval. This will also serve to protect your privacy.
  • If you are a parent, periodically check your child’s credit report. Otherwise, fraudulent activity might not be discovered until he/she applies for a college loan or credit card.
  • Never give personal information to someone that calls or e-mails you unless you are sure that they represent a company that you regularly deal with such as your bank.
  • Keep your personal information in a fire proof safe or safety deposit box at your bank.
  • Avoid carrying documents with sensitive data (Social Security Number, birth certificate, passport, etc.) unless it is necessary to do so.
  • Look for unusual activity on your Social Security Administration earnings statement.
  • Subscribe to a service that provides identity theft protection if you feel you need a higher level of security.

What to Do If You Are Victimized

Contact the IRS immediately if you suspect you are a victim of tax-related identity theft. You may be instructed to file Form 14039: Identity Theft Affidavit. Also inform the Federal Trade Commission (FTC), your local police department, and one of the three major credit bureaus referenced above. The IRS Taxpayer Guide to Identity Theft explains each step that needs to be taken and provides additional resources to help you.

The FTC recommends the following course of action if you suspect that you have been victimized:

— Equifax

— Experian

— TransUnion

  • Contact your bank(s) and other financial institutions.
  • Close any financial or credit accounts opened without your permission or tampered with by identity thieves.

If your SSN is compromised and you know or suspect you are a victim of tax-related identity theft, the IRS recommends these additional steps:

The IRS will place certain tax-related identity theft victims into the Identity Protection (IP) PIN Program and annually provide the taxpayer with a 6-digit IP PIN that must be entered on their tax return. No one will be able to submit your tax return without entering the correct IP PIN. Taxpayers that are not victims of identity theft can use Form 14039 to obtain an IP PIN. In this case, the taxpayer will receive a letter from the IRS inviting them to obtain an IP PIN. The taxpayer must pass a rigorous identity verification process called “Secure Access.” It is intentionally difficult to keep cybercriminals from accessing the tool.

The IRS has made progress in the fight against tax-related identity theft. As of February 2018, 9,557 tax returns with approximately $46 million claimed in fraudulent refunds have been identified. The IRS prevented the issuance of $22.2 million in fraudulent refunds. Furthermore, the IRS prevented approximately 7,376 fraudulent e-filed tax returns and 1,442 paper-filed tax returns from being accepted into the processing system (as of March 2018). The IRS has also identified and confirmed 2,204 fraudulent tax returns involving identity theft and identified 13,964 prisoner tax returns for screening (as of February 2018).

Although progress is being made to prevent and detect tax-related identity theft, much more needs to be done. Every taxpayer must be diligent about taking measures to protect themselves from becoming a victim. The adage: “If you see something, say something.” is as relevant here as in catching terrorists. By working together, we can fight back against tax-related identity theft.

If you have any questions or would like more information on the issues discussed in this article, please contact me at (215) 752-4242.

The Internal Revenue Service (IRS) officially opened the 2019 tax season on January 28, 2019. This is the day that the IRS began accepting paper and electronic tax returns. It is also the day identity thieves may begin to try to steal your money by filing your tax return. One of the best ways taxpayers can protect themselves from tax-related identity theft is to file early. The IRS only accepts one return per Social Security Number (SSN.

It is unfortunate that taxpayers even need to worry about tax-related identity theft. But they do, and more people are victimized each year. The IRS ranked identity theft third on its Dirty Dozen List of Tax Scams for 2018. Phishing and phone scams were number one and two, respectively. Nearly 60 million Americans have been affected by identity theft according to a 2018 online survey by The Harris Poll. That same survey indicates nearly 15 million consumers experienced identity theft in 2017.

Tax-related identity theft is one of the most common types of identity theft reported to the Federal Trade Commission (FTC). It accounted for 34% of reported incidents in 2018, down from 46% in 2015. The IRS is part of the Security Summit, which also includes state tax agencies and representatives from the tax community who joined together in a collaborative effort to fight identity theft tax return fraud. The IRS has made major improvements in detecting tax-related identity theft during the last two years.

Even so, the Identity Theft Resource Center counted a new record high of 1,579 data breaches, exposing more than 178 million records in 2017. The Equifax data breach alone exposed the names, SSNs, birthdates, addresses and, in some instances, driver’s license numbers for 147.9 million people.

Stealing your SSN and/or other personal data (address, birthdate, etc.) so it can be used to file a tax return is very profitable for fraudsters who are after a refund. The Government Accountability Office (GAO) reported that the IRS estimated that in 2016, criminals used false identities to try to claim billions of dollars in tax refunds. Although the IRS kept $10.5 billion out of the hands of fraudsters, criminals got at least $1.6 billion. It is important to note that the IRS paid out $5.2 billion in fraudulent refunds in 2013. So, the situation is improving.

Red Flags That You Have Been Victimized

Most people have no idea that they have been victimized until they file their tax return and it is rejected. As stated above, the IRS only accepts one return per SSN. Red flags that you may be a victim of tax-related identity theft include:

  • More than one tax return was filed using your SSN.
  • You owe additional tax, have a refund offset or have had a collection action taken against you for a year you did not file a tax return.
  • IRS records indicate you received wages or other income you did not work for.

How to Protect Yourself

There are many actions you can take to minimize your risk, including:

  • File your tax return as early as possible. Once the IRS processes a return with your SSN, it will reject any duplicates.
  • Opt for receiving your tax forms via e-delivery.
  • Do not respond to an e-mail or phone call from someone claiming to be from the IRS. The IRS contacts taxpayers by letter delivered by the U.S. Postal Service.
  • Select passwords that are difficult for someone to figure out.
  • Change all passwords at least once per year.
  • Make sure that your computer is protected by installing a security program and firewall.
  • Ensure your Wi-Fi is secure.
  • Never use public Wi-Fi if you are working with sensitive personal information.
  • Set the security settings for your internet browser at the highest level acceptable to you.
  • While surfing the internet, avoid clicking on links that you do not trust or appear questionable.
  • Do not share personal information such as your address or birthday on social media.
  • Review your credit reports annually from TransUnion, Experian and Equifax. Check to see if any unfamiliar or new accounts have been opened that you have not authorized.
  • Put a security freeze on your credit report to ensure that credit is not granted without your approval. This will also serve to protect your privacy.
  • If you are a parent, periodically check your child’s credit report. Otherwise, fraudulent activity might not be discovered until he/she applies for a college loan or credit card.
  • Never give personal information to someone that calls or e-mails you unless you are sure that they represent a company that you regularly deal with such as your bank.
  • Keep your personal information in a fire proof safe or safety deposit box at your bank.
  • Avoid carrying documents with sensitive data (Social Security Number, birth certificate, passport, etc.) unless it is necessary to do so.
  • Look for unusual activity on your Social Security Administration earnings statement.
  • Subscribe to a service that provides identity theft protection if you feel you need a higher level of security.

What to Do If You Are Victimized

Contact the IRS immediately if you suspect you are a victim of tax-related identity theft. You may be instructed to file Form 14039: Identity Theft Affidavit. Also inform the Federal Trade Commission (FTC), your local police department, and one of the three major credit bureaus referenced above. The IRS Taxpayer Guide to Identity Theft explains each step that needs to be taken and provides additional resources to help you.

The FTC recommends the following course of action if you suspect that you have been victimized:

— Equifax

— Experian

— TransUnion

  • Contact your bank(s) and other financial institutions.
  • Close any financial or credit accounts opened without your permission or tampered with by identity thieves.

If your SSN is compromised and you know or suspect you are a victim of tax-related identity theft, the IRS recommends these additional steps:

The IRS will place certain tax-related identity theft victims into the Identity Protection (IP) PIN Program and annually provide the taxpayer with a 6-digit IP PIN that must be entered on their tax return. No one will be able to submit your tax return without entering the correct IP PIN. Taxpayers that are not victims of identity theft can use Form 14039 to obtain an IP PIN. In this case, the taxpayer will receive a letter from the IRS inviting them to obtain an IP PIN. The taxpayer must pass a rigorous identity verification process called “Secure Access.” It is intentionally difficult to keep cybercriminals from accessing the tool.

The IRS has made progress in the fight against tax-related identity theft. As of February 2018, 9,557 tax returns with approximately $46 million claimed in fraudulent refunds have been identified. The IRS prevented the issuance of $22.2 million in fraudulent refunds. Furthermore, the IRS prevented approximately 7,376 fraudulent e-filed tax returns and 1,442 paper-filed tax returns from being accepted into the processing system (as of March 2018). The IRS has also identified and confirmed 2,204 fraudulent tax returns involving identity theft and identified 13,964 prisoner tax returns for screening (as of February 2018).

Although progress is being made to prevent and detect tax-related identity theft, much more needs to be done. Every taxpayer must be diligent about taking measures to protect themselves from becoming a victim. The adage: “If you see something, say something.” is as relevant here as in catching terrorists. By working together, we can fight back against tax-related identity theft.

If you have any questions or would like more information on the issues discussed in this article, please contact me at (215) 752-4242.

——-

Al Mueller is a Supervisor in Klatzkin’s Tax Services Group, where he provides services to small and medium-sized businesses and their owners.

 

 

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