Identity Theft Update

Early this year we published an article warning about the rise of tax identity theft. This article pointed out that one of the most popular ways to steal money is by filing fraudulent tax returns. Criminal groups are using stolen social security numbers, filing fraudulent returns and claiming fraudulent refunds.

Tax identity theft is a big-money crime. According to the IRS, more than 19 million fraudulent returns were filed from April 2011 through December 2014 claiming refunds of more than $68 billion. Of this amount, more than $5.8 billion in refunds were paid out to fraudsters. Earlier this year, the IRS took measures to beef up their processing filters so they could catch these fraudulent returns before they were processed. During the first half of 2015 alone, the IRS stopped about 3 million suspicious returns from being processed, a 25% increase from 2014. However, this did not stop the criminals; they simply migrated to state income taxes to improve their likelihood of success.

Florida by far was at the top of the list for the states with the highest reported identity thefts, with Washington coming in second, followed by Oregon, Missouri and Georgia. Georgia experienced an apparent spike in potentially fraudulent returns being filed through Turbo Tax®. At one point this year, TurboTax® temporarily stopped state filings due to huge security concerns.

Even though Ohio wasn’t on the top 5 list, additional security measures were implemented to confirm the identity of taxpayers filing Ohio income tax returns. This new process involved an identity quiz. According to the Ohio Department of Taxation (ODT), data analysis of information on the tax return and other various factors were used to select taxpayers for the identity confirmation quiz. The information used to populate the multiple-choice quiz comes from many public data sources consisting of historical information about the taxpayer such as the color of the car you drove in 1995, or the name of your Aunt’s youngest daughter, or the neighborhood development you lived in during 2005? Once you pass the quiz, they will process your tax return. If you fail the quiz, you are allowed to take it one more time online and, if needed, once via a phone call to an ODT representative for a verbal quiz. If you fail both the additional tests, you will need to mail documents to ODT to prove your identity such as a copy of your driver’s license, a copy of your birth certificate, etc.

According to the Federal Trade Commission (FTC), fraud frequently involves wage, tax and credit card records. Americans between the ages of 20-60 are in the highest risk group since they are most likely to be employed and use credit cards; however everyone is at risk, even children. A child’s personal information is readily available within the school system and not many people monitor a child’s credit report.

The IRS now allows victims of tax identity theft to get a copy of the fraudulent tax return that was filed using their personal information. This allows the victim to see how much personal information the fraudsters obtained and can potentially help determine how the information was obtained. The IRS has also developed an Identity Protection Personal Identification Number (IP PIN) for taxpayers that were victims or potential victims of identity theft. This 6-digit IP PIN is used to file future tax returns.

With the holiday season quickly approaching, year-end cleanup of documents and tax season just around the corner, here are a few things to keep in mind to help avoid identify theft:

  • Don’t carry your birth certificate or social security card when possible.
  • Avoid carrying documents with your social security number on it.
  • Check your credit report annually and report suspicious activity.
  • Protect your personal computers using anti-virus software, firewalls and backups.
  • Never give out personal information or account details over the phone unless you are sure of the person’s identity.
  • Shred personal documents and credit card receipts instead of throwing them away; personal shredders are relatively inexpensive.

If you were a victim of identity theft this tax season, please contact us and we can help walk you through the various reporting mechanisms to avoid future problems.

About the Authors

Cindy H. Mitchell
Cindy H. Mitchell
Director, Taxation Services
Robert M. Burak
Robert M. Burak
Partner, Taxation Services


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