Tax-Related ID Theft a Huge and Growing Problem

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IMGCAP(1)]The Federal Trade Commission says that 2014 marked the fifth consecutive year that tax-related identity theft was the most common form of reported identity theft.

According to the IRS National Taxpayer Advocate, the reason is simple: “We have heard of organized criminals who have given up drug trafficking to engage in the much easier, safer, and just-as-lucrative endeavor of tax refund fraud.”

Personal information can be stolen in many ways, from bogus IRS emails and unscrupulous return preparers to large-scale thefts of information from banks, schools and even correctional facilities. In the recent hacking of the IRS’s Get Transcript online application, the thieves apparently trolled social media to obtain answers to various “out of wallet” questions that (in theory) only the taxpayers would know.

The IRS has issued approximately 1.5 million Identity Protection (IP) PINs, a unique number assigned to victims to use when filing their federal tax return. In addition, when the IRS stops processing a suspicious return with a real name and/or Social Security Number, it may send a letter to the taxpayer requesting verification of identification by accessing the Identity Verification (Idverify) website or calling a toll-free IRS number.

Those affected by the Get Transcript hack will receive one of two letters. Letter 4281-A will go to the 100,000 taxpayers whose information was successfully obtained. It will explain how to obtain an IP PIN and offer one year of free credit monitoring. Letter 4281-B will be sent to the 100,000 taxpayers where an attempt was made but was unsuccessful. It will provide general information but no credit monitoring.

Identity theft victims should take the following steps:

1. Contact local law enforcement.
2. File an FTC complaint.
3. Ask one of the three major credit bureaus to place a fraud alert on their account.
4. Close any financial accounts that were opened or accessed without permission.
5. Respond immediately to any IRS notices.
6. Submit IRS Form 14039 (Identity Theft Affidavit).

Bear in mind the IRS does not contact taxpayers by email, telephone, or a knock on the front door to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The first contact will be through official correspondence sent via U.S. mail.

Jim Keller is executive editor of tax and financial planning with the Tax & Accounting business of Thomson Reuters.

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