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Steps to Prevent Tax Fraud and Identity Theft

“The [IRS] estimates it prevented $24.2 billion in fraudulent identity theft refunds in 2013. Trouble is, it paid out some $5.8 billion in fraudulent refunds” – Brian Krebs

So what can you, the consumer do to keep themselves safe from identity and tax fraud?

1. Beat fraudsters to the punch, file your taxes first.

While it is a bit late in this year’s tax season, consumers can help beat tax fraud by filing their returns as soon as possible during each tax season. This window usually opens up in the last two weeks of January and filing this early can head off any attempt at filing a fraudulent return in your name.

2. If you’re a victim of tax fraud:

Victims of tax or identity fraud should file a 14039 form with the IRS and request an IP PIN from the government. The IRS provides more details at:
https://www.irs.gov/Individuals/How-Do-You-Report-Suspected-Tax-Fraud-Activity%3F

If your federal tax return has been fraudulently filed, it is likely your state has to. Check with your state and report the incident to your state revenue agency. A list of resources in each state can be found here:
www.efile.com/tax-return-identity-theft-and-refund-fraud/

3. Place a fraud alert on your credit file.

Those who have been victims of identity and tax fraud as well as those preemptively worried about it can contact one of the three major credit bureaus (TransUnion, Experian, Exquifax) and request that an initial fraud alert be placed on their credit file for free. This ensures that creditors must contact you and confirm permission with you before opening any new accounts. Requesting from just one bureau will also place the fraud alert on your file with the other two bureaus. This alert lasts for 90 days and can be renewed. For more details, see:
https://www.consumer.ftc.gov/articles/0275-place-fraud-alert

4. Request a free credit report.

Each year, citizens are allowed by law to request a free copy of their credit report from each of the three major credit unions. Tax season’s increase in identity theft makes it a great time to request a copy of your credit report from one of the major bureaus to insure your identity was not used fraudulently to open an account or line of credit. Since each bureau allow one free report per year, it’s also helpful to space these freebies out over the year, about every 4 months, to more closely watch for incidents of identity fraud.

5. Monitor your credit, maybe.

If you’re the victim of your company, the IRS, or other entities disclosing your information, you may be eligible for free credit monitoring. Consider taking advantage of any free credit monitoring available to you. Though credit monitoring may not be as effective as some claim to be.

Other services such as IDnotify also offer “Identity Restoration” as a service to reverse the damage done in the event of identity theft. Similarly, several insurance companies like Allstate, State Farm, etc. also offer an addition to your homeowners policy to cover identity theft. A fraudulent filing may also kickoff an IRS audit. For that, audit insurance can provide you with a representative to help deal with the IRS if you are audited. Audit insurance is available through TurboTax or directly from the third-party provider that they use, taxaudit.com.

6. Freeze your credit.

Finally, freeze your credit with the there major credit bureaus. Freezing your credit restricts access to your credit report and prevents creditors from viewing your credit report on file. Stopping creditors from viewing your file prevents them entirely from extending credit in your name — effectively preventing the major financial repercussions of identity theft. For more details on this tool, see:
https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs

7. Existing accounts?

Credit freezes do not prevent your existing accounts from being compromised. It could be possible for an attacker to trick your bank with the sensitive information on a W-2. While policies vary among banks, contacting your bank is the best solution to both alert them of possible fraud in the future and for advice on how to protect your accounts with them.


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