Tax refund identity theft is the theft of personal data and identifying information, which is later used to steal money from taxpayers and the government. The stolen information, which typically includes the full name, social security number and date of birth of real people, is used by thieves to file false income tax returns and redirecting the return check to an account or physical address in control of the identity thieves.
How Serious Is the Problem?
Tax refund identity theft is increasingly becoming a key concern for taxpayers, the IRS and other federal regulators. Data from the Federal Trade Commission (FTC) reveals that fraudulent tax refund schemes are on the rise. In 2010, such schemes were responsible for 15 percent of the complaints that were made to the Commission regarding identity theft. In 2013, the number rose to a whopping 43 percent and has been increasing ever since.
What makes the tax refund fraud particularly lucrative to identity thieves is the relative ease with which they can perpetrate it. Once the social security numbers of taxpayers have been obtained, some counterfeit documents are all that are needed for perpetrators to steal thousands of dollars. It makes committing the crime easier than stealing automobiles or selling drugs.
What Steps Is the Government Taking to Protect Taxpayers?
The government has amped up its battle against identity thieves primarily with the help of the IRS. Internal Revenue Service has recognized refund fraud as a key concern and is taking strong actions to actively safeguard taxpayers’ money while prosecuting those involved in identity theft and making false claims of income tax returns.
In the fiscal year 2013, the IRS trained over 35,000 employees dealing directly with taxpayers in recognizing frauds and helping victims. It handed 1,492 criminal cases related to tax fraud identity theft to its criminal investigation unit. It was 66 percent more than the number of cases that the unit had handled a year prior.
What Can Taxpayers Do to Avoid Being Victimized?
There are certain precautionary measures that taxpayers can take to reduce their risk of being victimized. These include:
Filing Tax Returns Early
Identity thieves make use of the last-minute rush for increased chances of success. Filing tax returns early allows the IRS to process claims sooner and make returns before perpetrators can execute their schemes. Once a return has been made to a taxpayer, it gets registered in the IRS database, preventing others from claiming returns using the same details.
Taking Necessary Precautions While Filing
Taxpayers who seek the services of tax preparers for making claims and filing returns must verify their credibility first. When filing by mail, dropping the mail off at a post office reduces chances of malicious interception by fraudsters. Unlocked mailboxes should be avoided. When filing via the Internet, only a private and secure network should be used. Public Wi-Fi hotspots or unsecure networks spell trouble.
Knowing and Remembering the Warning Signs
Perpetrators are known to orchestrate schemes in the name of the IRS or other federal agencies. They may often contact via text messages, phone calls or electronic mail, soliciting private information in the name of a regulator. However, it helps to know that the first channel of contact for the IRS is postal mail and taxpayers are advised not to respond to any other communication.
Reporting such communication to concerned authorities is a good idea since they can track the IP address back to the perpetrators or thwart attempts using other methods. The IRS as well as other government agencies and NGOs maintain an exhaustive list of resources where taxpayers can obtain reliable information.
Taking Preemptive Steps
Despite taking precautions or maintaining due diligence, we are all vulnerable to identity theft. This is where identity theft insurance comes in. It reduces the financial implications of identity theft and tax fraud for victims and aids in other scenarios, such as paperwork filing, as well. Simply put, identity theft insurance reduces stress and promotes peace of mind.