How You Can Help Prevent Tax-Related Identity Theft



Tax-related fraud isn't a new crime, but tax preparation software, e-filing and increased availability of personal data have made tax-related identity theft increasingly easy to perpetrate. The IRS is taking steps to reduce such fraud, but taxpayers must play their part, too.

How they do it

Criminals perpetrate tax identity theft by using stolen Social Security numbers and other personal information to file tax returns in their victims' names. Naturally, the fake returns claim that the filer is owed a refund - and the bigger, the better.

To ensure they're a step ahead of taxpayers filing legitimate returns and employers submitting W-2 and 1099 forms, the thieves file early in the tax season. They usually request that refunds be made to debit cards, which are hard for the IRS to trace once they're distributed.

IRS takes action

The increasing rate of tax-related fraud - not to mention the well-publicized 2015 IRS data breach - has spurred government agencies and private sector businesses to act. This past June, a coalition made up of the IRS, state tax administrators, tax preparation services and payroll and tax product processors announced a new program with five initiatives:

  1. Taxpayer identification. Coalition members will review transmission data such as Internet Protocol numbers.
  2. Fraud identification. Members will share fraud leads and aggregated tax return information.
  3. Information assessment. The Refund Fraud Information Sharing and Assessment Center will help public and private sector members share information.
  4. Cybersecurity framework. Members will be required to adopt the National Institute of Standards and Technology cybersecurity framework.
  5. Taxpayer awareness and communication. Members will increase efforts to inform the public about identity theft and protecting personal data.

Your role in preventing fraud

But the IRS and tax preparation professionals can't fight fraud without your help. Be sure to keep your Social Security card secure, and if businesses (including financial institutions and medical providers) request your Social Security number, ensure they need it for a legitimate purpose and have taken precautions to keep your data safe. Also regularly review your credit report. You can obtain free copies from all three credit bureaus once a year.

This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use. The information contained in this newsletter was not intended or written to be used and cannot be used for the purpose of (1) avoiding tax-related penalties prescribed by the Internal Revenue Code or (2) promoting or marketing any tax-related matter addressed herein. © 2016