[IMGCAP(1)]With cases of identity theft and tax fraud increasing almost exponentially, tax preparers should educate their clients about the dangers they face in having their information compromised, according to executives at several credit monitoring and identity protection services.
Consumers are increasingly aware that they are potential targets of tax-related fraud, observed Mike Bruemmer, vice president of consumer protection at Experian. “Between 2014 and 2015 there was a 47 percent increase in the number of ID theft cases, with the biggest portion attributable to ID theft that resulted in fraudulent tax returns and refunds,” he said.
But although taxpayer awareness of ID theft is at an all-time high, not many are doing anything differently to protect themselves, particularly those who prepare their own returns rather than use a paid preparer, Bruemmer said. “Only 12 percent of respondents [in a just-released Experian survey] are planning to check their credit report, an important first step in monitoring for fraudulent activity that could indicate identity theft,” he said.
In the survey, 76 percent of respondents said they were aware of ID theft and tax fraud, and 55 percent said they were concerned about becoming a victim. Moreover, 28 percent have been a victim or know someone who has been a victim of tax fraud. Those who have been affected most commonly file a police report (59 percent) and place a fraud alert on their credit reports (58 percent).
A majority of survey respondents don’t plan to take the IRS-recommended steps to protect themselves, according to Bruemmer.
“Of those who file their own return, 8 percent will file on a protected Internet connection,” he said. “So 92 percent will file on an open Wi-Fi or public Wi-Fi that is unprotected. That’s very dangerous.”
Slightly over half (56 percent) of the respondents prepare their own return. That’s close to the IRS filing season statistics as of Feb. 26, 2016, which show that so far this season, 27,372,000 returns were self-prepared, while 27,709,000 returns were completed by tax professionals.
For those who use paid professionals, Bruemmer recommends questioning them on the security measures they have in place. For all taxpayers, he recommends they enroll in credit monitoring.
“The Dark Web is the underground trading site where criminals who have stolen information will buy or sell the information for financial gain,” he explained. “There are certain protocols to get in there. We search those sites and determine what information is being bought and sold out there. If your information is for sale, it’s a sure indication your identity has been compromised.”
Last year Experian serviced about 3,500 data breaches, according to Bruemmer. “They include Fortune 50 companies, government entities, all the way down to small businesses and individuals. There were pretty close to 26,000 cases of ID theft over that same period.”
For those who are victims of fraud, the time and effort involved in straightening things out can be enormous, Bruemmer noted. “Last year our fraud resolution team helped a consumer work through the issues that occurred when a tax lien was filed against an LLC they owned. We saw the report and investigated. Our agent was able to unwind everything with the IRS and get the lien taken off. If the consumer didn’t have one of our experts that work directly with the IRS, it would likely have taken months to clear up, but in this case it was cleared up in a matter of weeks,” he said.
To avoid tax fraud, the rules are similar to any sort of credit card fraud, according to Mary Ann Miller, senior director and fraud executive advisor at NICE Actimize.
“Preparers should tell their taxpayers to be vigilant and cynical and just don’t give out Social Security numbers to anyone,” she said. “That is one card that you leave home without. And don’t respond to any email that looks like it is from the IRS, your bank or any other agency with personal information. And if you receive a phone call stating that they are from the IRS or any other agency, do not give out personal information. If it is a legitimate call, the agency will already have the details.”