I always dread February, partly for the weather but mostly because it’s tax-prep time. After 12 months of stuffing papers into a file folder, I now have to sift through them for Uncle Sam. It’s a task I like to put off as long as I can, even when I’ll be getting a refund. You may feel the same way.
But this year, there’s a disturbing, new reason to stop procrastinating and file early: soaring tax-return identity theft.
How Crooks Steal Tax Refunds
Con artists have long used Social Security numbers to illegally gain access to credit cards and bank accounts. Now they’re snagging them to file fraudulent tax returns early in the tax-filing season so they can get illegal tax refunds before the real taxpayers submit their returns to the Internal Revenue Service.
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How Tax ID Theft Victims Find Out
Victims discover the problem only after they file. The IRS might reject their electronic return because the agency received another one with the same Social Security number. Or legit taxpayers could get an IRS letter saying they aren’t due the refund they expected because someone else already filed a return and claimed the money.
The danger is real and getting bigger. The IRS received nearly 450,000 identity theft cases in fiscal year 2012, a 78 percent increase over 2011, according to the agency’s Taxpayer Advocate Service.
What the IRS Is Doing
Hoping to reduce the scam, the IRS has assigned more than 3,000 employees to work on the problem and initiated about 900 criminal investigations. In January, a 32-state sweep identified 389 identity thief suspects; 109 were arrested.
The agency also says it has prevented more than $20 billion in fraudulent refunds and has issued 770,000 identity protection personal identification numbers, or PINS, to people who were or might have been victimized.
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“I can say we are getting much better,” acting IRS Commissioner Steven T. Miller told the Associated Press. “We know that we need to do much, much more.”
6 Months to Resolve Cases
But critics, including the Taxpayer Advocate Service, say the IRS isn’t working fast enough to protect victims. It often takes more than six months to resolve tax-related identity theft cases, partly because 21 IRS units work on them. There’s currently a backlog of 300,000 cases, Miller said.
Tax ID Theft Advice
All of this means that you need to be on guard and take swift action if you’ve been scammed. Here’s how:
Safeguard your Social Security number. Don’t carry your Social Security card in your wallet and only give out your number if you’re required to, such as when applying for a job.
Similarly, if you have a Medicare card, make a photocopy, cross out your SSN and carry that instead.
File your tax return early. This will reduce the window of time in which a thief could fraudulently file your return and grab your refund. So as soon as you have all your 1099s and tax statements, send the IRS your 2012 return. (One snag: The IRS won’t let taxpayers file 29 specialized forms until March because the new versions were delayed by recent tax-law changes; a list of them is posted on IRS.gov.)
If you file electronically, use a secure Internet connection. A public network could be too easy for hackers to break in and steal your Social Security number.
Secure your financial files. Make sure the data on your computer is protected by firewalls and anti-spam virus software. Email material to your tax preparer using encryption. Once you’ve submitted your taxes, save the information on a CD or flash-drive, then delete the original file on your hard drive.
Respond immediately to any notice you receive in the mail from the IRS. It could be a notification that your tax refund was stolen. Never respond to what looks like an electronic message from the IRS. The IRS doesn’t initiate contact with taxpayers by email, text messages or social media channels.
If you think you’re an identity theft tax victim, tell the IRS immediately. Call the agency’s toll-free number, (800) 829-1040.
(MORE: Beware of This Fast-Growing ID Theft Scam)
Contact the IRS if you think you might be at risk. That could be the case if, for instance, your wallet was stolen or a credit card was opened by someone in your name. If so, phone the IRS's Identity Protection Specialized Unit at (800) 908-4490. You’ll also need to fill out an identity theft affadavit, Form 14039, which you can get on the IRS site.
If you filed your return but haven’t received your refund, use the IRS’s “Where’s my refund?” service. The agency’s website and smartphone app can give you an update. Just don’t check more than once a day; that’s how often the IRS refreshes its information.
The IRS says the best time to avoid delays when checking on your refund electronically is by using the service at night or on the weekend. (Incidentally, 9 in 10 taxpayers get refunds in under 21 days when they file online and instruct the IRS to deposit the money directly in their bank accounts.)
Remember, if your tax return was rejected because someone else filed one with your Social Security number, you still need to send in an official return. Contact the IRS about possible fraud, print out the electronic version of your return and submit a paper version by mail.