Tax season has officially started and identity theft — particularly tax refund fraud — continues to rise, threatening your clients and yourself.
Identity theft has topped the list of consumer complaints reported to the FTC for the past several years. And now, tax-related identity theft is the number one type of identity theft reported, putting individuals with an annual household income of $75,000 or more at the highest risk, according to a 2014 study by U.S. Bureau of Justice Statistics.
A few insights into how criminals work, and what preventive steps you can take, will help you protect your clients and your business.
Read More: The 2016 IRS Dirty Dozen
Tax identity thieves typically begin by creating fake W-2 forms which are then used to file fraudulent returns and cash in on your client’s hard earned money before they have even had a chance to file. This is why filing early can help you get ahead of the criminals.
However, filing at the start of the season is not often an option for high-net-worth individuals who have to wait for K-1s, Form 1099s, and other documents. Fortunately, filing early is not the only way to avoid identity theft. There are other ways you can help your clients stay vigilant this tax season.
Beware of IRS imposters
Phishing emails and other social engineering attacks pose a significant threat to businesses and individuals, and cyber-attacks are growing in sophistication.
IRS imposter scams, in which criminals impersonate IRS officials to solicit money and/or information from taxpayers, have skyrocketed in the past two years. In 2013, the FTC received 2,545 complaints about IRS imposter scams. In 2014, that number was 54,690!
The IRS does not contact taxpayers via email, demand immediate payment over the phone or require taxpayers to use a specific payment type like wire transfer or prepaid debit card. Therefore, any such requests should be reported online or via call: 800-366-4484.
Apply for an IP PIN
An identity protection personal identification number or IP PIN, is a six-digit number designed to help prevent the fraudulent use of an individual’s Social Security number on federal income tax returns. Once a taxpayer has opted to use an IP PIN, he will need to use it to confirm his identity on all his federal tax returns filed for the current and subsequent years. The IRS will send a new IP PIN each year by mail.
The IP PIN is sometimes confused with the five-digit e-File signature PIN, but they are not the same. In order to be eligible to apply for an IP PIN, a taxpayer must meet certain criteria which include: receiving an IRS invitation to “opt-in” to get an IP PIN or having filed federal tax returns last year with an address in Florida, Georgia or the District of Columbia.
Taxpayers can visit the IRS website to apply for an IP PIN.
Any taxpayer who has been a victim of a data breach should submit a Form 14039, Identity Theft Affidavit, if her Social Security number has been compromised and either her e-File return was rejected as a duplicate or the IRS has informed her that she may be a victim of tax-related identity theft. Executors of estates should file the affidavit on behalf of deceased taxpayers.
Some practitioners suggest that the majority of taxpayers should file the affidavit, given the current prevalence of massive, high-profile data breaches.
Protect personal and financial data
There are several other ways you and your clients can help to minimize the risk of identity theft and keep valuable information safe from criminals, including:
- Protect your Social Security number.
- Shred documents with personal information.
- Create strong passwords.
- Review bank and credit card activity regularly.
- Set up transaction alerts.
- Install anti-virus software and keep it up to date.
- Don’t enter financial or personal information on non-secure websites.
- Beware of public Wi-Fi networks, which are easy targets for hackers.
- Consider more advanced data security techniques such as encryption and tokenization.
Remember, not even deceased taxpayers are safe. Each year, thieves steal the identities of nearly 2.5 million deceased Americans, according to the IRS. The executor of an estate can play an important role in combating identity theft by canceling the decedent’s credit cards, locking his credit and safeguarding his electronic passwords, computers and other digital devices, which could contain personal and financial data.
Plan ahead to protect your clients and yourself from identity theft this tax season. Don’t become the next victim.
David Merzel, CPA, CFE, EA is an entrepreneurial services principal in Kaufman Rossin’s Boca Raton office. Kaufman Rossin is one of the Top 100 CPA and advisory firms in the U.S.
John R. Anzivino, CPA, is a principal in Kaufman Rossin’s Miami office, where he leads the firm’s estate, trust and exempt organization practice.
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