E-File Tax Identity Theft Fraud is Exploding: Here is How to Protect Yourself
As with anything, when the majority of a population uses something, it usually becomes the target of malicious or criminal activity. Just ask Microsoft Internet Explorer engineers.
Now that over 84% of individual tax returns are e-filed with the IRS, the thieves have found clever ways to claim your tax refunds through fraudulent identity theft, as I alluded to in my tax return guide.
E-filing had such a good thing going there for its users – quicker returns, easier to catch errors, no trip to the post office, and the peace of mind that your return reached its destination. And the IRS loves e-filing because they result in easier audit pulls, electronic data storage, and fraud detection.
But with their increased popularity and familiarity, e-filing identity-theft tax fraud has exploded to more than 1.1 million cases in 2011, up from 51,700 in 2008.
It has gotten so bad, that Turbotax shut down state tax returns for a day this year because of a huge uptick in fraudulent tax returns, which has caused a number of states to stop accepting state e-filed returns. Hopefully, it is not related to the Anthem hack.
Why is E-Filing a Fraud Target?
And about that direct deposit thing… you might think that a deposit account would be traceable back to the perpetrator. Well, it turns out all you need is a prepaid card from any grocery or drugstore. They have routing and account numbers, making them look like a legit direct deposit, without any real traceability if paid for by cash.
So, if a defrauder has your Social Security number, and a means to accept a direct deposit, and they file before you, they can claim they are owed whatever refund they like – and it will be added to their account if they file before you.
Any re-course on behalf of the IRS that would result in you getting a proper refund could take months, if not years.
If that’s not motivation to file your tax return quicker, I don’t know what is.
How to Protect Yourself from Tax Identity Fraud
There is no way to ensure you are 100% protected from tax identity theft fraud.
If you’ve been a victim of identity theft, you’re a prime target for identity theft tax fraud.
And the message here is not that you go back to paper filing (which won’t help you at all).
Rather, you should follow a multi-pronged approach to avoid being a victim of tax identity fraud, and identity theft, in general:
- Protect your SS#: Always be extremely cautious about who you give your Social Security number to – and only disclose it when absolutely necessary. Outside of the government, your employer, and lenders, there are not too many parties that have a legit claim to know it. You can always say “sorry, I do not like to give out that number” when prompted. Also, keep your Social Security card in a safe place that only you can access – never your wallet or purse, in the event they are lost or stolen.
- Eliminate your Paper Trail: Get your own paper shredder and shred any paper documentation with personal identification information, especially your Social Security number.
- Withhold the Right Amount: Plan your withholding tax allowances so you don’t expect a big refund, in the first place. Remember, a refund is not a good thing – it means that you’ve been giving the IRS an interest-free loan on your money!
- Look for Suspicious Activity: Credit Karma has free credit report access and free credit monitoring, so you can take early notice if you’ve become a victim of identity theft by getting a lead on suspicious activity.
- Get there First: File your tax return as soon as you have all the information to do so to get your rightful refund before a thief claims a fraudulent one. E-filing allows you to submit quicker, ironically, which gives you a bit of an advantage.
- Get a Confidential E-File PIN: You can request a confidential e-file PIN. Give it to no one.
If you believe you’ve been a victim of identity theft or get a notification of suspicious activity, contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245 so that they can take measures to protect your tax return from fraud. If you think you’ve been defrauded, you can also, open a case with the IRS using Form 911.
Tax Identity Theft Discussion:
- Have you been a victim of tax return identity theft fraud? Share your story.
- Do you have any additional tips on how to protect yourself from identity theft that could lead to tax fraud?