With the revelation that another 220,000 taxpayers may find their identities at risk in the breach of the IRS’s “Get Transcript” application, you may find your clients worried that their identities, their credit scores and maybe their life savings will wind up at the mercy of some free-spending crook.
What can you tell them?
“To be careful everywhere and all the time,” said Paul Knapp of Exact Income Tax Service, in Santa Fe, Texas. “We’re publicizing scams and telling clients and non-clients to call us before they send money to anyone.”
“This is a tough area to explain to clients,” added Jim Loperfido of JGL Management Consulting in Auburn, N.Y. “I have long discussions with my clients who use the Internet often.”
“I encouraged taxpayers to have refunds direct-deposited [last season],” said Sandy Szumiloski, a preparer in Harleysville, Pa. “I made them aware that ID theft was an issue and that it happened in my own family, to my mother-in-law. Also, I warned all clients about telemarketing scams; I personally received these calls. Several of my clients also received them.”
Enrolled agent Mele Perrego in Clayton, N.C., tells clients “that if they even just suspect that their identity might be compromised [to] file an identity theft affidavit (Form 14039)and also see the other recommendations on posted on IRS.gov.”
Some preparers keep recommendations in reserve. “We don’t discuss ID theft unless the return is rejected due to someone stealing a Social Security number,” said R. Dale Dixon, an EA and president and CEO of The Tax Surgeon in Smyrna, Ga.
Hacking generates screaming headlines these days, as once-relatively minor breaches of retail giants’ and insurers’ databases gave way to hacks into the IRS and perhaps every other federal agency. One in four Americans fell victim to information security breaches in the past year, according to a new AICPA survey more than double the number of respondents who reported being victimized just over a year ago.
“We now have about a dozen or more clients affected by it,” said EA David Spaulding, principal of Janover LLC in Garden City, N.Y. “E-filing is essentially neutralized for these [clients].”
The IRS recently joined with representatives of tax prep and software firms, payroll and tax financial product processors and state tax administrators in a new collaborative effort (http://www.accountingtoday.com/news/tax-practice/irs-teams-tax-prep-industry-states-fight-identity-theft-tax-fraud-74879-1.html) to combat ID theft refund fraud. The agreement includes identifying new steps to validate taxpayer and tax return information at the time of filing.
The IRS Criminal Investigation division has also created a cybercrime unit to combat ID theft-related tax fraud; the agency also recently agreed to change its policy on ID theft and provide victims with copies of the fraudulent tax returns that have been filed under their names by scammers.
Anybody can become an ID victim. Another recent AICPA survey showed that more than a third of adults ages 55 to 64 fell victim to information security breaches in the last year, compared with 22% of Millennials.
Several preparers still report only small numbers of ID theft victims in their entire client base. “I had two victims this year out of about 250 clients, but filed about an additional three or four 14039s as a precaution for other clients,” Perrego said.
“I had to be proactive with the clients with the greatest risk and vulnerability: senior citizens,” said EA Yolanda Johnson of Tax Accountants Inc. in Orland Park, Ill. “I called to notify them that may get a call from someone impersonating an IRS collection employee and demanding money, and to refrain from giving out any personal information. I also provided them the phone number to the IRS to verify they didn’t have a balance due.”
Advanced Tax Centre in Rockledge, Fla., keeps “several promotional items in our reception area regarding the matter,” said EA Twila Midwood. “In addition, our newsletters always emphasize awareness of scams that the IRS will not initiate contact through phone or e-mail.”
EA Bob Smith with Albert Lea Tax Service in Albert Lea, Minn., added that his firm has had four clients get letters from the IRS regarding returns filed in those clients’ names and that the IRS believed to be fraudulent, “but got no explanation or other information from the IRS.”
The IRS itself also complicated Johnson’s client confidence this past season. “Due to the ID theft issues,” she said, “the IRS sent a form letter to the majority of our client base stating that they were reviewing their 2014 tax return. Many clients misunderstood the letter and thought they were being audited.”
Becky Neilson of Neilson Bookkeeping, in Sheridan, Calif., tells all her small-business clients to get an EIN “even if they don’t have employees,” she said. “Then when they complete W-9s for customers to give them 1099s, they’re only putting out their EIN and not their SSN out there. I also tell clients if they suspect ID theft, act quickly and let their bank or credit card company know.”
“We encourage quarterly review of their credit information when meeting to discuss their quarterly estimated taxes and financial reports,” added J. Alan Fagan, an EA and founder and CEO of The Mattox Group in Marina, Calif.
“I always make sure to inform clients about freezing their credit reports to provide additional protection, said Caitlin Campbell, an EA at Tower Financial Partners in Colorado Springs, Colo. “I also suggest they visit their credit reports at the free site and to pull one from a different bureau every four months.”
Loperfido’s Upstate New York firm abides by a “5% Rule.”
“That is, 5% of all business transactions are with people who have unethical motives,” he explained. “We want our clients to use whatever means is the best way to grow their business or make their quality of life better. It just needs a bit more practice and control to keep the five-percenters from getting into our pockets.”
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