It’s tax time which once again means that the fraudsters and lowlifes are out in force. One type of tax fraud that has soared over the last few years is tax refund fraud. Basically, this is where someone using your Social Security Number and birthday file a bogus tax return seeking a refund. Two years ago, the IRS estimated this type of fraud cost taxpayers about $6.5 billion. This tax season the IRS is estimating it will cost taxpayers over $21 billion. You may ask how this could happen. There are a couple reasons, including the IRS’s out-of-date fraud detection system and the fact that it takes so little personal information to file a tax return. Basically, all you need is name, date of birth and Social Security Number. This is why protecting sensitive information is so important. Unfortunately, the IRS doesn’t have the means to stop tax fraud and most of us won’t find out we are subject to one until we hear from the IRS that our tax return has been rejected.
If you find you’ve been subject to tax refund fraud either because the IRS would not accept your tax return or you received a notice from the Internal Revenue Service about a suspicious tax filing, there are some things you should do. First, notify the Internal Revenue Service Identity Protection Unit immediately. Their toll-free number is 800-908-4490. After you have notified the IRS, you should obtain Form 14039, Identity Theft Affidavit, from www.irs.gov and complete the form. This form should then be mailed in to the IRS along with your tax return. You should know that even if your tax return was fraudulently paid to another individual, the IRS will still honor your return and you will get your refund although, it will may a while.
If someone has filed a fraudulent tax return on your behalf, you need to do more than just contact the Internal Revenue Service. I also recommend that you file a police report with your local police department and a complaint with the Federal Trade Commission. The Federal Trade Commission’s website is www.ftc.gov.
It is also important that you contact the three main credit bureaus, Equifax, Experian and TransUnion. You should notify them that you have been a victim of identity theft and they should put a fraud alert on your account. In addition, it’s not a bad idea to pull your credit report from the three agencies. One thing you sometimes see is these thieves will apply for credit in your name. By pulling out a credit report and putting a fraud alert, you can do your best to minimize any harm to you.
Particularly for those who have been subject to some sort of identity theft, it is important to regularly change your passwords. I know it’s a hassle and I hate to do it myself; however, we all have to recognize that technology has changed the world and we must change along with it. I guess I will analogize to when I was a kid. I grew up in Oak Park and our doors, particularly during the day, were unlocked. In fact I think most of the people on the block didn’t lock them. Today, I think the first thing most of us do when we come home is make sure the doors are locked. Times have changed and we have to change with it. My recommendation for all of us is to make sure we regularly change our passwords and never let our guard down. Identity thieves are out in force and they can do us tremendous harm. We may not be able to 100 % protect ourselves but by being diligent and taking some precautions, we can greatly reduce the chance we will be victims.
Rick is a fee-only financial advisor. His website is www.bloomassetmanagement.com. If you would like Rick to respond to your questions, please email Rick at email@example.com.