Preventing tax-related ID theft
As the owner of a small tax office business, I see tax-related identity theft among others often, but when it happened to my employees as well, I decided to expand the responsibilities of my business to become tax protectors as well as tax preparers. To do this, I needed to educate not only my employees and clients, but first, myself. I was then able to take action that has provided positive results and empowered employees and a loyal customer base.
Tax-related identity theft happens when a taxpayer’s Social Security number is obtained from someone else and used to file a tax return claiming a refund. Thieves may also use a stolen Employee Identification Number from your business clients to create fake W-2s. Both of these actions could support fraudulent refund schemes.
For example, earlier this year at Tampa General Hospital, an employee with access to the personal health information of thousands of patients was found guilty of illegally accessing the personal information of more than 600 patients between June 2011 and December 2012. That information was used to file 29 false tax returns of refunds totaling over $226,000.
So my first step was to become intimately familiar with Publication 5199, Tax Preparer Guide to Identity Theft, and IRS.gov. Most of the information I organized into steps derived from these resources. This helped me to formulate actions when identity theft happens or when fraud is suspected, and finally what measures to take in prevention. My next step was to lay out separate procedures for reporting and prevention.
In either instance, I directed all employees and recommended to clients that they become familiar with the Federal Trade Commission Web site, www.identitytheft.gov, for reporting fraud or protecting their credit.
For prevention of identity theft and fraud, I made it policy for all my employees to mark out the Social Security number and direct deposit bank account information when providing physical copies of returns to clients. This was the most obvious weakness, as it could allow someone simple access in obtaining a Social Security number just through viewing someone’s return. Secondly, I provided referral information to them regarding securing their credit with fraud alerts or a security freeze through the three major credit bureaus, Experian, Equifax and TransUnion. This was something that each employee and client needed to do independently.
Last and most important, I made it mandatory for all tax preparers to obtain certification with the Internal Revenue Service. This was actually easier to implement, as I offered to reimburse my employees for their training and testing. Having certified preparers turned out to be a valuable investment all around as it not only increased their knowledge, but also their job satisfaction.
These are some specific steps I started looking for as warning signs before reporting:
1. When you receive an IRS reject code of R0000-902-01 for one of your clients, this indicates the Social Security number was already used in a previous return.
2. The IRS reports that your client has a balance due, refund offset or a collection action taken for a year in which they did not file.
3. IRS records indicate that your client received wages from an unknown employer.
4. Your business client receives an IRS notice about an amended return, fake employees, or about a bogus business. (Note: The IRS will only communicate with your clients by postal mail. They will never use e-mail or phone!)
5. Lastly, I directed all employees to closely examine all tax forms (i.e., W-2s, 1099s and so on) for physical tampering or alterations, excessive income or federal income tax withheld.
For actual reporting, I took these actions:
1. Instructed employees and clients to never ignore any IRS notice they receive in the mail, and to bring it to the office as soon as possible for action.
2. Assisted employees and clients in completing Form 14039, Identity Theft Affidavit, and faxing or mailing it to the IRS.
3. Requested clients provide a power of attorney on file so I may speak directly to the IRS on their behalf. (I’m working on my Enrolled Agent certification, as this will remove the necessity for this step.)
The last couple of tax seasons have shown that these actions are a win-win for my clients, my tax preparers and my business. Employees are empowered to get real help to our clients on a topic we were not previously prepared for.
I have applied these steps not only to my employees and clients, but to their families, friends and people I’m just meeting for the first time.
These aggressive and direct steps show how much we care, and knowing that someone cares goes a long way in keeping employees and clients reassured during a stressful situation and eventually getting them the help they need. This makes all involved happier and has shown a growth in returning customers.
Establishing identity theft protection and recovery action plans for my employees and clients certainly worked for me. It went a long way to establishing and maintaining positive and trusting relationships.
Make a plan and protect your internal and external interests. Doing so could go a long way in securing your business growth, but most importantly guard against this industry threat.