By Robert DeHollander, CFP®, AIF®, CRPC® Managing principal, DeHollander & Janse Financial Group
There has been a lot of chatter regarding the recent Tax Cuts and Jobs Act. If you’re not thinking about your taxes yet, you should be — identity thieves certainly are.
During tax season, there’s a significant increase in the sharing of sensitive information, both online and via postal mail. Not surprisingly, it’s also when many crooks and scammers come out of the woodwork. For them, it’s prime time to steal your personal information and possibly your identity. Or, if you’re like the many Americans who fell victim to any of the recent data breaches, your information is already out there, and identity thieves may use tax season to capitalize on it. This year, the Internal Revenue Service expects refund fraud to exceed $20 billion.
What is tax-related identity theft?
In short, a thief uses someone else’s social security number to file a fraudulent tax return and collect a refund. Then, when the real taxpayer files, he receives a notice from the IRS stating that a return has already been submitted under that social security number. If an identity thief beats you to the punch and files a phony return using your information, the remediation process can take at least six months, and usually even longer.
Ways to protect yourself
To avoid dealing with a fraudulent tax return, keep these important tips in mind:
- File as early as possible. The faster you act, the less time an identity thief has to file a tax return in your name.
- Stay secure. If you’re filing online, use a secure internet connection. If filing by mail, don’t just drop your return in the mailbox; bring it to the post office instead.
- Shred it. Be sure to shred any mail and other documents containing personal or financial data. (Thieves are known to rummage through trash looking for this type of information.)
- Safeguard your data. Whether online, over the phone, or by mail, don’t provide your personal information unless you initiated the contact. If you receive a message asking for personal information, call that entity on a verified number to confirm that the request is legitimate.
- Consider enrolling in an identity-theft protection service. Beyond typical credit monitoring, these services can track your personal information across the internet and public databases, alert you to suspicious activity, and provide an insurance policy to repair damage if your identity is stolen.
Other key points
As you prepare for tax season, remember this:
- The IRS will never contact you via email, and it very rarely contacts taxpayers by phone.
- If you receive a mail notification from the IRS, call your local IRS branch for additional information.
- When this type of crime started happening frequently several years ago, the changes that were noted on the fake returns were not unusual enough to trigger suspicion. Typically, the IRS would discover the tax-refund fraud when the legitimate taxpayer filed his return.
- Give credit to the IRS, as its vigilance appears to be working. It has trained almost half of its 80,000 employees to spot tax-return identity theft and prevent it. It has dedicated 3,000 to 4,000 employees to helping victims of identity theft. According to the IRS, it has begun applying more rigorous analytics to the first returns, which are now being used to catch fraud and detect patterns during the initial filing. The good news is that the number of false returns filed in 2016 dropped to 787,000, down from 1.2 million the prior year. However, there is still a significant risk of fraud being perpetrated.
- Be especially vigilant, not only at tax time but also year-round, about how and with whom you share your sensitive information.
- If you do believe you have been a victim of identity theft, report it immediately to the Federal Trade Commission at www.ftc.gov and follow the steps at www.identitytheft.gov. Alternatively, you can call the IRS Identity Protection Unit at 800-908-4490, extension 245, and file the IRS Form 14039, the IRS Identity Theft Affidavit.
For more information, including ways to reduce your risk of tax-related fraud, visit the IRS Taxpayer Guide to Identity Theft at www.irs.gov/uac/Taxpayer-Guide-to-Identity-Theft.
Robert DeHollander is a managing partner and co-founder of the DeHollander & Jane Financial Group located at 3515 Pelham Road, Suite 100, in Greenville. Contact him at 864-770-0220. Securities and advisory services offered through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser.