Accountants aren’t the only ones whose busiest season is from February through April. Identity thieves and scammers are also hard at work this time of year, trying to get their hands on your personal information as well as your money.
Tax-related identity theft accounted for more than 40 percent of the ID theft complaints received by the Federal Trade Commission last year, nearly twice as many complaints as the commission received in 2011. On top of that, more than half of consumers are concerned about becoming a victim of tax-related identity fraud, according to a poll just out from Experian, an information services company.
While it’s impossible to protect yourself entirely from ID thieves, follow these steps to lessen the likelihood that you’ll become a victim:
1) Get your returns in early. A common method that scammers use around tax time is filing a fraudulent return on behalf of someone else and collecting that person’s refund. In this scenario, the thief would use a taxpayer’s Social Security number to file a bogus return that brings a big refund.
In 2011, the Internal Revenue Service doled out $4 billion to identity thieves, sending millions of returns to people using stolen Social Security numbers. “The IRS processes the first return it receives, so when the real taxpayer sends in his return it will be rejected,” says Jonathan Bochese, a senior tax attorney y with the Tax Defense Network.
In such instances, most taxpayers do eventually receive their proper returns, but it might be a long wait: It takes the IRS an average of 312 days to resolve each case. Since 20 percent to 25 percent of taxpayers wait until April to file, according to the IRS, sending your returns in sooner could protect you from this type of fraud.
2) File electronically. E-filing is the quickest and most secure way to send your returns to the IRS. Just be sure to do so via a private computer with a secure wireless connection. If you are among the 20 percent of filers who still send paper documents through the post office, at the very least use certified mail. “Filing electronically just gets rid of that paper trail, and makes it harder for thieves to get to your information,” says Mark Steber, chief tax officer at Jackson Hewitt Tax Service.
3) Vet your preparer. Another common scam around tax time is for criminals known as “ghost preparers” to help taxpayers fill out returns and then promise to file the return on the taxpayer’s behalf and pass on a refund amount. Often, such preparers will then fudge information on the returns to get a bigger refund, passing only the legitimate amount on to the tax payer.
By the time the IRS contacts the taxpayer about anomalies in the return, the tax preparer is long gone. “Then the burden falls on you, the taxpayer, to prove you are who you say you are and that you did not knowingly file a false return,” says Melanie Lauridsen, of the American Institute of Certified Public Accountants. “That process can take months.”
Protect yourself from this type of fraud by hiring a credentialed tax pro (look for a certified public accountant or an enrolled agent) who has been in the business for at least several years. Even if a tax preparer e-files on your behalf, refunds should come directly to you. Do not hire anyone who wants to receive your refund before passing it along to you.
4) Safeguard your documents. During tax season, check your mailbox daily to pick up sensitive materials—like a W-2—that you receive through the mail. Crooks have been known to check local mailboxes to pilfer such documents, which gives them easy access to important information.
Don’t send documents to your tax preparer via email and be careful to gather all copies if you’re compiling or printing papers at work or at a public computer. If the IRS needs to contact you, they’ll do so via snail mail. “Fraudsters know that if they send a text or an email that purports to be from the IRS this time of year, there’s a higher likelihood that people will take the bait and click on a malicious link,” says Becky Frost, senior manager of consumer education for Experian’s ProtectMYID program.
5) Report potential fraud early. If you think you’ve been the victim of identity theft, contact the IRS immediately. The agency will assign you an Identity Protection PIN that you can use when filing to verify your identity.
Remember that once a cheat has your Social Security number, he may not stop at filing a false tax return. Often criminals will also try to set up new credit cards or otherwise gain access to your financial accounts. Check your credit report regularly, and consider signing up for fraud monitoring that will alert you immediately to suspicious activity on your account. In addition, change any passwords or pin numbers associated with your financial accounts.
You’ll also want to file a police report about the theft. While your local cops probably won’t start hunting down ID thieves on your behalf, having the report will help you when you’re dealing with creditors and the IRS.
Top Reads from The Fiscal Times:
- The 10 Worst States for Taxes in 2014
- Why Tax Preparers May Be Obamacare’s Big Booster
- How Obamacare Could Affect Your Taxes This Year
- Investing Education
- Social Security number