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The Resource Center Identity Theft & Protection | post

File Your Taxes Early to Reduce the Risk of Identity Theft

by Neal O'Farrell on

In today’s article, Intersections’ Consumer Security Adviser, Neal O’Farrell shares some important tips to help keep us safe during the upcoming tax-filing season. April 15th may be several months away, but it’s never too early to protect yourself!

I don't normally start talking about tax time identity theft this early, but if you want to prevent someone else from grabbing your refund before you do, early filing is essential. That's the advice I recently gave to one victim who found that every member of his family had their identities compromised, as a small ring of thieves did everything they could — from applying for mortgages to opening new credit cards — as soon as they got their hands on the stolen information.

And at this time of the year, one of the first things a thief will do with a stolen identity is concoct a fake tax return and submit it using the victim's identity. When the victim files their own return, the scam is exposed, leaving the victim without a refund they might have been relying on to pay important bills. And the IRS can take up to a year or more to investigate the fraud and issue a new refund. If they issue a new one at all.

And it's not just the living who are victimized. In 2009, the IRS issued more than $12 million in tax refunds to 5,000 dead people, part of a variety of scams using the identities of the dead to defraud the IRS. And that impacts us all. Not only does it deprive us of money that belongs to taxpayers, it consumes a huge amount of time processing these fake returns, investigating the frauds, and trying to recover the funds.

According to a recent story by Bloomberg, the IRS is woefully unprepared to investigate fraudulent returns. Bloomberg cited a government watchdog that claims the IRS does not have the funds to identify potential identity theft and investigate suspicious tax returns. It said that last year the IRS identity theft caseload grew by 20 percent to more than 226,000 and that the number of tax returns the IRS decided needed additional screening for possible fraud exceeded 1 million, a 72 percent increase over 2010.

And this is what thieves are preying on. I've written a few times about Operation Rainmaker, a stunningly-successful scam in Florida last year where street level drug dealers turned to IRS-related identity theft and were able to scam the IRS out of more than $130 million in bogus tax refunds.

The scam took advantage of the fact that because of budget and manpower issues, the IRS rarely investigates tax refunds of less than $10,000. So the drug dealers learned how to steal identities and prepare tax returns, and were quickly able to earn millions from the scam. A scam that was not discovered by the IRS but by a local employee who became suspicious of all the text refunds going to the same addresses.

There are some things you can do to protect yourself and your refund:

  • File early so you get your refund before the thieves do.
  • Choose your tax preparer carefully. There seems to be a worrying uptick in recent years in the number of tax preparers stealing or abusing the identities of their clients.
  • Be wary of any emails or even phone calls you receive claiming to be from the IRS. They rarely call and they never email.
  • If you plan to mail in your return, take it directly to the post office to reduce the risk of mail thieves intercepting it•
  • If you can, have your refund deposited directly to your bank account so that your refund check is not intercepted by thieves.
  • If you file online, make sure your computer is free from malware. You should be doing this anyway.
  • If you think your Social Security number has been compromised or exposed, call the IRS identity theft hotline and ask them to place a red flag on your Social Security number. You can call the IRS Identity Protection Specialized Unit, toll-free at 1-800-908-4490.

Learn more about identity theft protection.

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