The Internal Revenue Service is taking further steps to combat identity theft, including issuing proposed regulations that allow taxpayers to truncate the identification numbers on some tax documents they file.
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The American Institute of CPAs applauded the IRS’s proposed regulations, which would make permanent a pilot program to authorize filers of certain information returns to truncate an individual payee’s nine-digit identifying number on specified paper payee statements (see IRS Pilot Program Allows Truncating Payee Numbers). But it would like the IRS to go even further and allow the use of truncated Social Security numbers on all types of tax forms and tax returns provided to a client.
“We believe that the proposed regulations are a necessary step in beginning to address the alarming growth in tax related identity theft cases,” AICPA Tax Executive Committee chairman Jeffrey A. Porter, CPA, wrote in a letter Wednesday to the IRS.
“We also view the proposed regulations’ publication as recognition of the increasing concerns about tax related identity theft and truncation of social security numbers (SSNs) in the tax practitioner community,” he added. “The regulations’ objectives are consistent with taxpayers’ and practitioners’ concerns and questions about the continuing need to receive paper documents that provide a taxpayer’s full SSN.”
Porter noted that the AICPA urged the IRS to make the pilot program permanent in a July 18, 2011 comment letter and that the 2011 letter requested extension of the truncation program to permit the use of truncated SSNs on all types of tax forms and returns provided to a client, employee or other recipient.
Because there may be statutory or other limits placed upon the IRS’s ability to expand the truncation initiative, Porter said the AICPA urges “the Administration to consult with Congress for enactment of legislation to extend the use of truncated SSNs to all types of tax forms and returns provided to a client, employee or other recipient. The need for this expansive legislation is supported by the growing concern over identity theft in general and the growth in the number of cases being handled by the IRS.”
IRS Crackdown on Identity Thieves
The IRS has been expanding its efforts to combat identity theft in response to a growing problem in recent years. It participated in a nationwide sweep that nabbed 389 identity theft suspects in January and led to 100 arrests and 389 enforcement actions in 32 states and Puerto Rico (see IRS Conducts Nationwide Sweep to Crack Down on Identity Theft and Tax Refund Fraud). By late 2012, the IRS assigned more than 3,000 employees—more than double the number from 2011—to work on identity theft-related issues.
The IRS also noted that it continues to enhance its screening process to stop fraudulent returns. During 2012, the IRS protected $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.
The IRS offered taxpayers the following tips to avoid becoming an identity theft victim:
• Guard your personal information. Identity thieves can get your personal information in many ways. This includes stealing your wallet or purse, posing as someone who needs information about you, looking through your trash, or stealing information you provide to an unsecured website or in an unencrypted email.
• Watch out for IRS impersonators. Be aware that the IRS does not initiate contact with taxpayers by email or social media channels to request personal or financial information or notify people of an audit, refund or investigation. Scammers may also use phone calls, faxes, websites or even in-person contacts. If you’re suspicious that it’s not really the IRS contacting you, don’t respond. Visit the IRS's Report Phishing page to see what to do.
• Protect information on your computer. While preparing your tax return, protect it with a strong password. Once you e-file the return, take it off your hard drive and store it on a CD or flash drive in a safe place, like a lock box or safe. If you use a tax preparer, ask how he or she will protect your information.
The IRS noted that your identity may have been stolen if the IRS notifies you that:
• You filed more than one tax return or someone has already filed using your information;
• You owe taxes for a year when you were not legally required to file and did not file; or
• You were paid wages from an employer where you did not work.
The IRS advised taxpayers to respond quickly using the contact information in the letter they received from the IRS so that it can begin to correct and secure the tax account.
If taxpayers think they may be at risk for identity theft due to a lost or stolen purse or wallet, questionable credit card activity, an unexpected bad credit report or any other way, they should contact the IRS Identity Protection Specialized Unit toll-free at 1-(800)-908-4490. The IRS will then take steps to secure your tax account. The Federal Trade Commission also has helpful information about reporting identity theft.
If you have information about the identity thief who used or tried to use your information, file a complaint with the Internet Crime Complaint Center.
For more information—including how to report identity theft, phishing and related fraudulent activity—visit the Identity Protection home page on IRS.gov and click on the Identity Theft link at the bottom of the page.
Taxpayers Expect More Protection from IRS
According to a new survey from the identity protection and privacy service TrustedID, more than half of consumers believe the IRS is responsible for preventing tax identity theft. The survey also found that more than half of the consumers surveyed were unaware of and confused about what tax identity theft is and two-thirds of consumers did not have a good understanding of tax identity theft.
More than 1.1 million tax returns were filed by identity thieves for the 2011 processing year, up more than 21 times from just 51,700 fraudulent returns in 2008, according to figures from the House Committee on Oversight and Government Reform. In addition, the Treasury Inspector General for Tax Administration believes that tax identity theft could cost the IRS approximately $21 billion in fraudulent returns in the next five years.
The fast-growing problem has created new challenges that will require the IRS to confront the latest opportunity for identity thieves—stealing tax refunds. National Taxpayer Advocate Nina Olson recently found that the IRS has been ineffective in assisting tax identity theft victims, citing internal organizational as well as procedural issues. While the IRS is under fire, over 50 percent of consumers still believe that the IRS is trustworthy when it comes to protecting their Social Security number and other private information.
“Tax time is among the most vulnerable for consumers with all of their most valuable personal information being compiled and shared,” said TrustedID CEO Scott Mitic in a statement. “The IRS must find a way to protect consumers from falling victim to this growing threat and work to develop a swift resolution for victims. Additionally, while the IRS has some trust with consumers, the growing number of tax identity theft cases creates a serious and growing gap between perception and reality. Tax identity theft is a big problem that has grown exponentially over the course of a few short years. The IRS has an obligation to increase awareness of this threat and consumers need to better familiarize themselves with the issue and how to protect themselves, especially since effective assistance might not be available once their identity has been compromised.”
To help proactively safeguard information during tax season, TrustedID offered taxpayers the following tips:
• Monitor your tax documents closely. Make a list of everyone who pays you, including employers, banks and brokerages, and make sure you receive hard copies in the mail of what they send to the IRS.
• Beware of IRS-related scams. If you receive an email or phone call asking for your personal or financial information, delete it or send it to the FTC at email@example.com for investigation. The IRS will never email taxpayers about issues related to their accounts or ask for your Social Security number or financial details over the phone. If you have any doubt whether a contact from the IRS is authentic, call them directly to confirm it.
• Review carefully if filing with a third party. When using software, CPA or national tax agency to prepare your taxes, ensure you are reviewing all the information carefully and that all the original paperwork is returned to you.
• Be diligent if you are e-filing. With e-filing, evidence of fraud is difficult to find—there are no signed tax forms, envelopes, or fingerprints. It’s easy for criminals to e-file using a real name and SSN and a phony W-2 or Schedule C. If you're filing your taxes online, be sure to use updated firewall, antivirus, and spyware software.
• Take precautions if mailing your filing. If filing by mail, walk the envelope inside of the post office and hand it to an employee. Too much mail is stolen out of the USPS and driveway mailboxes. Send your return by certified mail so that you know it has arrived safely. This also sends a message to each mail carrier that they had better provide extra protection to the document they are carrying.