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Beware of This Fast-Growing ID Theft Scam

A crook may try to steal your Social Security number to receive an IRS tax refund or to get a job

posted by Caroline Mayer, March 21, 2012 More by this author

social security card pictured as a padlock with key

Caroline Mayer is a consumer reporter who spent 25 years working for The Washington Post. Follow her on Twitter @consumermayer


social security card pictured as a padlock with key
iStockphoto | Thinkstock
Since this is National Consumer Protection Week — a campaign run by a consortium of government agencies and consumer advocacy groups — I want to warn you about a virulent form of ID theft you’ve probably never heard of: tax and wage-related identity theft.
 
When the Federal Trade Commission released its annual list of top consumer complaints last week, identity theft topped the list for the 12th year in a row. The news was that tax and wage-related fraud accounted for nearly 1 in 4 of the ID theft complaints — double the percentage reported in 2009.
 
Tax and wage-related identity theft happens when a con artist steals your Social Security number and uses it to get a tax refund or a job. “This is a new variation of an old theme,” says Steve Toporoff, an attorney in the FTC’s Division of Privacy and Identity Protection. ID thieves have long used Social Security numbers to open new accounts and do other kinds of financial mischief, he notes.
 
The Internal Revenue Service reports that in 2011 it avoided processing 262,000 fraudulent tax refunds involving identity theft. That’s up from 49,000 a year earlier.
 
Unfortunately, you may not discover you’re a victim of tax and wage-related identity theft until well after the fact, when you get a notice from the IRS.

Here’s what you need to know to protect yourself — and what to do if you become a victim:
 
Tax refund ID theft: This form of identity theft can occur in one of three ways:
 
The crook might use your Social Security number to file a fake tax return and fraudulently obtain a refund from the IRS before you file your return.
 
Or the ID thief might get the Social Security number of a recently deceased taxpayer then file a return for that person to snag a fraudulent refund.
 
Or the thief could obtain the Social Security number of your child or grandchild to claim him or her as a dependent. If that happens, when you file your return, the IRS will say that you can't claim your child or grandchild as a dependent because someone else already did.
 
Wage-related ID theft:  In the case of wage-related identity theft, the thief uses your Social Security number — and perhaps even your name — when applying for then getting a job. This puts you in jeopardy, since the IRS may think you failed to report that employment income on your tax return. The agency would then start an enforcement action against you.
 
Why this crime is soaring: Government officials suggest several reasons for the sharp increase in tax and wage-related identity theft.
 
The Internet has made it relatively easy for crooks to find Social Security numbers online if they know where to look. Electronic tax filing is also partly to blame, because actual W-2s don't need to be submitted with tax returns filed online.
 
But the IRS is doing a few things to stem the fraud and help victims.
 
For one thing, it’s trying harder to identify fraudulent returns before it issues refunds (the IRS does this by looking for activity that deviates from a taxpayer’s typical return). For another, the agency has stepped up its monitoring of deceased taxpayer accounts.

At the same time, the IRS is working to resolve ID-theft cases more quickly, although the process can still take several months after the agency and the victim spot the problem. Some ID-theft victims now receive Identity Protection Personal Identification numbers to put on future tax returns, so the IRS knows the returns are legit.
 
How to protect yourself: Still, it's best not to become a victim in the first place. How do you protect yourself against tax and wage-related identity theft?
 
First and foremost, guard your Social Security number. Don’t carry your card around with you. Don’t give out your number unless you must (you may have no choice when applying for a job or filling out forms at the doctor’s office). Never give out the number over the phone to a person or business you don’t know.
 
Medicare cards still display Social Security numbers to identify beneficiaries, which presents a risk if your wallet is stolen. If you’re on Medicare, make a photocopy of your card and cross out your Social Security number on the photocopy with a black marker. Then carry the photocopy in your wallet. Just remember to carry your real card if you’re visiting a health care provider for the first time.
 
And be vigilant. One way to see if your ID has been hacked is by checking your credit report from each of the three major credit bureaus once a year, since you'll be able to tell if someone has run up your credit card. You can do this for free by going to www.annualcreditreport.com. If you think someone has stolen your identity, call your bank immediately.
 
What to do if you become a victim: If you believe you have been a victim of tax or wage-related ID theft, call the IRS at (800) 908-4490 or follow the instructions at www.irs.gov so the agency can secure your tax account.
 
Respond promptly to any IRS letter you receive by calling the phone number in the letter. And remember: The IRS doesn’t send out emails. So never, never, never reply to an email from anyone purporting to be with the IRS. Otherwise, you will soon become a victim of another type of ID theft scam.
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