Identity Theft

02-12-2013Tax Information

Identity theft concerns:

  • Thieves normally file early in the tax-filing season, often before the IRS has received Forms W-2 or 1099, to thwart information matching and avoid receiving duplicate return notices from the IRS.
  • In 2011, the IRS processed about 145 million returns. About 109 million were claims for refunds, with an average refund amount of almost $3,000.
  • The IRS had pulled 2.6 million returns for possible identity theft, and that trend is on the increase.
  • Until recently, the IRS would hold suspicious refunds while verifying the underlying W-2 information, for up to 11 weeks. With the increase in the number of cases and budget limitations, refunds may take longer.
  • Identity theft typically starts when thieves (illegally) buy or steal information from individuals, employers, hospitals, or nursing homes. They also use the public list of deaths with SSNs issued by the Social Security Administration. With a number or list of numbers, they file false tax returns for refunds.

What to do if an identity is stolen

  1. For tax and nontax identity theft, report the theft to the Federal Trade Commission at 877-438-4338, ftc.gov/complaint.
  2. File a report with the local police.
  3. Close any affected bank and credit card accounts.
  4. Inform the credit bureaus and consider putting a credit freeze on the accounts. A credit freeze restricts access to credit reports, making it unlikely that thieves can open new accounts in the client’s name. Credit freeze laws vary from state to state.
  5. If personal information is lost or stolen during the year, contact the IRS Identity Protection Specialized Unit at 800-908-4490, and complete Form 14039, if necessary.
  6. Respond to all IRS notices immediately, using the name and number printed on the notice.

Identity theft prevention techniques

  1. Arrange for masked SSNs where possible, e.g., on insurance cards, so that client SSNs are closely protected and circulated as little as possible.
  2. Watch credit reports from the three major credit bureaus; consider offering this as an off-season service or adding a timely reminder with contact information to the firm newsletter. Contact details for the fraud departments of the three major credit bureaus:
    • Equifax–equifax.com, 800-525-6285
    • Experian–experian.com, 888-397-3742
    • TransUnion–transunion.com, 800-680-7289
  3. Forward all information appearing to be from the IRS promptly to your tax advisor and do not click on links or open attachments from emails claiming to be from the IRS.
  4. Safeguard their Social Security cards, store them in a safe and secure location, and not discard any documents with an SSN on them.
  5. Resist giving businesses an SSN or other personal information just because they ask for it; often it is not required, and dissemination of SSN information is risky.
  6. Invest in and use a shredder before discarding documents.
  7. Secure personal information in one’s own home using a locked file cabinet or safe.
  8. Protect personal computers by using firewalls and anti-spam or anti-virus software, updating security patches, and regularly changing passwords for internet accounts with sensitive information, such as online banking sites.

How identity is stolen

Common ways to obtain personal information include email or telephone phishing and Dumpster diving. Thieves are looking for “discarded tax returns, bank records, credit card receipts or other records containing personal and financial information”

The IRS does not send unsolicited, tax-account related emails to taxpayers and never asks for personal and financial information, including PINs and passwords, via email. The IRS advises that “[s]ince the IRS rarely contacts taxpayers via e-mail, and never about their tax accounts, taxpayers should be cautious about any e-mails that claim to come from the IRS”.

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