How to Avoid Tax-Return Identity Theft

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Credit: Brian A Jackson

Thousands of Americans will not get their tax refunds this year — not because they don't deserve them, but because identity thieves will have already filed tax returns under their names.

All a scammer needs to steal your identity and your tax refund is your name and your Social Security number — the two most important parts of your personally identifiable information (PII). The scammers then make up values to report as your income and deductions, and file the fake tax return under your name.

Most of the refunds, which are mailed in the form of a check or a prepaid debit card to the thief's address, or electronically transferred to a bank account the thief controls, will be small, to make it easier for them to go undetected. But an identity thief can file hundreds of false tax returns per year.

How tax thieves get your personal information

Even as Americans become more aware of the perils of identity theft and the need for better security practices, it's still relatively easy for thieves to obtain strangers' sensitive personal information.

"There are a number of ways criminals can gain access to your personal information — from a data breach to a phishing email scam to good, old-fashioned dumpster diving," said Trey Loughran, president of Equifax Personal Information Solutions in Atlanta. "Some fraudsters pose as tax preparers offering discounts to file your return, or even as the IRS itself through fake emails."

Sophisticated identity thieves often have accomplices with access to sensitive data. In 2011 and 2012, two Florida identity-theft gangs were discovered using hospital records, stolen by employees of medical billing agencies, to file thousands of false tax returns and collect at least $35 million in refunds.

The bottom line, Loughran said, is that criminals know how lucrative it can be for them to file fake tax returns, and hence are constantly inventing new schemes to steal your personal information.

What the IRS is doing to stop tax-refund theft

The Internal Revenue Service knows about tax-return identity theft, and the agency has increased its efforts to catch the fraud attempts. The IRS has 3,000 employees trained to sniff out potential identity-theft cases among the millions of returns that are filed.

Eva Velasquez, CEO and president of the Identity Theft Resource Center in San Diego, said that because most Americans interact with the IRS only once a year, it's difficult to spot fraudulent returns.

"The IRS gets a snapshot of our lives once a

year," Velasquez said. "In that time period, things change, sometimes dramatically.

"Employers, earnings, bonuses all change," she said. "Dependents are born, and they age out. We relocate, get married, get divorced, etc. But the one thing that stays constant is your identity. Everything else is in flux."

When this type of crime first started happening frequently several years ago, the changes that were noted on the fake returns were not unusual enough to trigger suspicion, Velasquez added. Then, the only way the IRS would discover tax-refund fraud was when the legitimate taxpayer filed his or her return.

"This is no longer the case, according to the IRS and the representatives that we have spoken with about this issue," Velasquez said.

"While they cannot share the details for fear of educating the crooks," she added, "they have let us know there are analytics — conceptually similar to what your credit-card issuer and financial institution employ — applied to the first returns, which are now being used to catch fraud and detect patterns during the initial filing. Progress has been made, but there is still much fraud being perpetrated."

How to make sure tax-refund theft doesn't happen to you

There are a few steps to take to prevent becoming a victim of tax-return identity theft. The first is to protect your personal information so that it doesn't get stolen in the first place, said Neil Chase, vice president of education for Tempe, Ariz.-based LifeLock.

"That means shredding documents that contain your personal information, reducing the number of times you give it out, questioning anyone who asks for it about whether and why they really need it, locking your mailbox to prevent the old-fashioned manual theft that still happens often, and watching carefully for mail, phone and email scams," he said.

The second step is to file your tax return early. "If you file your tax return first, an identity thief will be denied when trying to use your Social Security number to file a fake return," Loughran said.

Loughran also advised making certain your tax preparer is legitimate.

"Make sure you're dealing with a legitimate tax-preparation service by checking with the Better Business Bureau," he said. "Never sign a blank tax return for someone else to fill out."

If you do believe you have been a victim of identity theft, don't panic. Instead, call the IRS Identity Protection Unit at 800-908-4490, extension 245, and file the IRS Form 14039, the IRS Identity Theft Affidavit.

After that, continue to monitor bank accounts and credit cards for unauthorized use.

Source: www.tomsguide.com

Category: Taxes

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