Watch Out for Tax Identity Theft This Tax-Filing Season

Computers and the Internet have become mainstays in virtually every area of American life in the 21st century. There are tremendous benefits and conveniences to this, of course, but there are also some downsides — such as the increased risk of identity theft that arises as we share more of our personal information online.

In fact, identity theft has been called “the crime of the 21st century,” consistently ranking at the top of the Federal Trade Commission’s list of complaints every year. While there are many ways for identity thieves to strike offline, the Internet has made it that much easier for them to steal sensitive personal information from unsuspecting and careless individuals online.

A New Kind of Identity Theft

With the tax-filing season now upon us, there’s another kind of identity theft you should be watching out for tax identity theft. In this scheme, identity thieves enter stolen personal information (primarily Social Security numbers) on fraudulent tax returns that claim tax refunds. They then cash the refund checks themselves, leaving the victims spending weeks or months trying to clear up the confusion with the IRS and get their own legitimate tax refunds.

“You can’t necessarily monitor tax ID fraud, because of the fact that so much of our information is out there,” says Greg McBride, Chief Financial Analyst at Bankrate.com. “Somebody can have your Social Security number and they could have been sitting on it for a while, and you would have no idea until they go and file a bogus tax return under your Social Security number. You only find out at the point where your legitimate return gets rejected.”

On its website, the FTC states that tax identity theft accounted for about 20 percent of all identity theft complaints in 2017. According to the Internal Revenue Service (IRS), there was a 40% decline in taxpayers reporting they were victims of identity theft from 2016 to 2017, presumably thanks in part to IRS security awareness campaigns for both tax professionals and taxpayers, and additional security measures put in place.

Nevertheless, identity theft criminals remain active, with the Identity Theft Resource Centre (ITRC) recording 1,579 data breaches in 2017, up 45% from 2016, and Experian reporting that W-2 scams increased by almost 80% over that period.

News reports have featured a number of stories highlighting the different ways that thieves have stolen personal information from victims and used it to commit tax identity theft. For example:

  • A part-time data entry clerk stole tax returns she was working on and used the information to file fraudulent tax returns requesting large refunds.
  • An employee at a collection agency stole the personal information of debtors and then sold it to professional identity thieves, who used it to file false returns seeking fraudulent refunds.
  • A woman who worked as a customer service rep for a student loan processor gave the personal information of student loan borrowers to a tax preparer, who in turn used the data to file fraudulent returns requesting large refunds.

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Source: CBN