Protecting Your Identity at Tax Time

Tax time is hunting season for identity thieves. Unfortunately, they don't wear bright orange vests that might make them a little easier to spot. And there is no end to their scams and ingenious ways to capitalize on their busiest season. Each year we see thieves become more creative and sophisticated, with scams that could fool the most cynical and vigilant consumer.

Bogus IRS Calls

These calls can come in the form of either live (a real person) or automated phone calls purporting to be from the IRS. They accuse you of something you didn't do, or ask for clarification for something they claim you did.

For example, some scams will claim that someone else has already filed tax returns in your name or using your Social Security number. Or they claim that the IRS has multiple addresses for you, you're not listed with the employer you claim, or your taxes are being withheld because of unpaid child support.

This scam is usually focused on tricking you into revealing your Social Security number in order to clear up the matter.

Phony Refunds

These scams take the same format as the ones mentioned above — usually you’ll receive a phone call or an email — but this time they focus on a variety of reasons why you won't be receiving your refund. For instance, they claim there are certain discrepancies that must be cleared up, such as your full name, spouse's name, Social Security number, etc.

A variation of this scam requests bank account information in order to direct deposit your refund (and threats of long delays if you choose not to direct deposit), or that a random review has found that you were underpaid in your last refund.

These scams are expected to increase dramatically as the economy takes a downturn, and as people move from job to job, their company is acquired, or they are laid off.

Scams also exploit the upheaval in the financial markets with callers claiming that your previous bank has been taken over by a new one, and the IRS requires confirmation of your new bank account details in order to pay your refund on time.

Dishonest Tax Preparers

Your choice of tax preparer can get you in trouble, too. It might surprise you, but if you have your taxes prepared by one of the large tax services there's a good chance that your returns will be completed in Mumbai or Bangalore.

India is one of the world's top locations for outsourcing everything from customer support to telemarketing, and it's now also one of the top places for outsourcing tax return preparation.

Despite the security precautions the tax firm may take, they may have little control over the security and privacy of your data in a country that has very different privacy laws.

You also need to be wary of dishonest tax preparers. In one incident, a woman left her tax preparer's office without her documents. She had mistakenly left behind her Social Security card, driver's license, and bank documents.

When she returned to collect the documents, the tax preparer denied any knowledge of them. Later, he was charged with identity theft because he had used the stolen documents to withdraw $2,500 from the victim's bank account.

Mail Theft

Another common tax scam focuses on your mail. In one scam, a thief created a company called MRS and, at tax time, spent her time raiding mailboxes in numerous neighborhoods. Wherever she found checks made out to the IRS she simply changed the "I" to an "M" and deposited the checks in her own bank account.

In total, the thief netted around $500,000. Months later, when the IRS notified the victims that their tax returns had not been received, the thief and her company were long gone.

Phishing

Phishing schemes abound around tax time, as consumers are bombarded with all kinds of emails offering free tax preparation, faster refunds, requests for donations from bogus charities, threats from the IRS and so on.

Beware of emails you think are from your bank notifying you that "Your refund has arrived early... Please click here to view it." Or, from the IRS stating that “Your  refund check from the IRS has been rejected because of an accounting error.  Please confirm your bank account number, etc..." It could actually be from an identity thief who wants access to your bank account information and password.  

So What Can You Do to Protect Yourself?

• Be suspicious of any calls or emails purporting to be from the IRS, no matter what the issue. The IRS will always send you a letter in the mail before contacting you in another way. They rarely call and never email you.
• Never confirm your Social Security number or bank account details by email or over the phone.
• If your bank or employer has been taken over lately, be wary of any calls asking that you confirm your tax information or employment status.
• Guard your mail, because it's especially attractive at tax time. Ideally, you should have your mail delivered to your front door — not to a curbside mailbox. Collect your mail as soon as you can and take your tax returns directly to the post office for mailing.
• If you plan to use an online tax preparation service, make sure you stick with a reputable one that has adequate security measures in place. Be wary of emails offering such services; they’re often bogus. Also, be careful when typing in the URL or Web address of an online service. If you misspell the name, you could end up on a fraudulent lookalike site that mimics the real one.
• Make sure your computer is free of malware, such as computer viruses, and spyware that can steal a copy of your Social Security number or bank account password.
• Choose your tax preparer carefully, and don't be afraid to ask important security questions, such as how your information is protected in their offices during and after preparation, how long they keep a copy of your tax return, and whether they conduct background checks on their employees.
• If you owe money to the IRS, try to pay it online. If you have to pay by check, spell out the name Internal Revenue Service because it's harder to forge than the letters IRS. And don't drop the check in a mailbox; take it to the post office. Your safety is worth the extra effort.
• Don't email tax information or returns to your accountant. Email is not a secure way to send any document.
• If you make copies of your return on a photocopying machine, be aware that many machines keep a copy of your pages in short term memory! Not so good if you use a photocopier in a public location.
• Don't forget to shred any unnecessary documents or copies when tax season is over.
• If you plan to keep a copy of your tax return on your computer, make sure it's password-protected and encrypted to protect it from prying eyes.
• Check your credit report immediately after tax time and a few months later, too, to make sure your personal information hasn't been stolen and is not being used against you.