At least 9 million Americans are the victim of identity theft every year, according to the Federal Trade Commission. You have no doubt read about cases in the media where large retailers such as Target have had their customer databases hacked. It’s become an all too common characteristic of modern society, where purchases and other financial exchanges are often handled digitally.
What you may not know is that the most common type of identity theft happens not when a person makes a transaction, but through the filing of taxes.
The FTC reported more than 100,000 complaints of tax-related identity theft in 2014, higher than any other source — the fifth straight year it topped this infamous list.
One of the most common tactics by criminals is to file a fraudulent tax return on your behalf and claim a refund. Tax filings are a good source for cyber-thieves because they typically contain all the pertinent information they need: name, address, date of birth, social security number, financial accounts, etc.
Some ID thieves work singularly or in conjunction with others, such as an employee in the mortgage industry who sells lendee information to computer hackers. Sometimes criminals will even use the identity of a minor who is still in school or a deceased person.
In one famous case, a records clerk at a corrections facility stole the IDs of more than 1,000 prison inmates and filed false federal and state tax returns for them!
In many cases, victims do not even know they are the victim of tax-related ID theft until they receive a notice from the IRS indicating that multiple returns have been filed, or that wages were reported to them from an unknown (and likely bogus) employer.
Correcting the fraud and collecting your actual tax refund can be a lengthy and frustrating process. The Treasury Inspector General for Tax Administration (TIGTA) found it took the IRS an average of 278 days to resolve identity theft cases.
Often the fraudulent filings happen at the very start of the tax filing season. IRS officials have said that $17 million worth of ID theft happens on the very first day taxpayers are eligible to file a return. To combat this, the IRS and FTC recommend filing as early as possible to get ahead of the thieves.
Federal officials are working to crack down on tax-related ID theft. The IRS claims that during the period of 2011-14 it stopped 19 million suspicious returns and protected more than $63 billion in fraudulent refunds. They are also now issuing special identity protection PIN numbers (IP PIN) to victims of identity theft to use when filing subsequent returns.
If you think you have been the victim of identity theft, there are a number of steps you should take. After confirming that ID theft has occurred, you should file theft complaints with the FTC, credit agencies, local law enforcement and the IRS. You will then receive a notice from the IRS with instructions on how to proceed.
You would also do well to obtain the services of a professional who can help you navigate the financial and legal jungle of reclaiming your identity, and obtaining peace of mind.
If you have been the victim of tax-related identity theft or want to know more about how to prevent it, please call Nick Hopkins in our Tax Services department at (317) 608-6695 or email [email protected].