Jean and Carl are your everyday couple. They are looking forward to retirement in a few years and don’t have a very complex tax picture. Like many of us, they procrastinated on preparing their taxes but know they have to get them filed so they can get their refund. They have a cruise planned for the beginning of May and their tax refund will pay the balance owed for the trip, and give them spending money for souvenirs.
So they decide to plow through it one weekend, and by Sunday evening are ready to file their return. Because of several charitable deductions, they’re expecting a refund of $2,800. However, when Jean clicks the “File Your Return” button, they receive an immediate error notification, telling them that their return has been rejected. They try again the next day, assuming it was some kind of technical glitch, but receive the same notification.
Unfortunately Jean and Carl have become the latest victims of a new form of identity theft, and their hoped-for tax refund has been claimed by someone else. Amazingly enough, the only things a criminal needs to file a fraudulent return is a person’s name, Social Security number, and date of birth. The IRS uses your Social Security number to track your earnings, taxes and filings. If someone has used your number to falsely apply for a job, the employer will report those earnings to the IRS and you would get a letter from the IRS stating you failed to report income. If someone has used your Social Security number to file a false income tax return before you file, you won’t be able to e-file: Your return will be rejected and the IRS will send you a letter saying that a return has already been filed for your Social Security number. While victims aren’t liable for the theft and will eventually receive the refund owed them, it could take up to a year – and a lot of hassle – to get things sorted out. It’s far better to take steps now to prevent the theft from happening in the first place.
Protecting Your Information
It isn’t difficult to safeguard your sensitive personal information, but it does require vigilance. Here are a few tips.
- Never send sensitive personal information by email unless the email is encrypted. Here at Pinnacle, we provide a highly secure online client vault so that our clients and advisors can exchange financial documents away from the prying eyes of identity thieves.
- Invest in a good paper shredder, and use it. Don’t simply throw away documents that include private information – identity thieves frequently go dumpster-diving for such things.
- When you mail a bill payment – or anything that might contain sensitive personal information – drop it in a mailbox or hand it to your postal worker. If you simply leave it in your mailbox with the flag up, you’re inviting someone to steal it.
- Never give out personal information to someone who calls you unsolicited, unless you’re absolutely sure who they are.
- If you’re getting rid of an old computer, destroy the hard drive. Simply erasing the data isn’t enough – it can often be recovered by a tech-savvy thief.
For more information, the National Crime Prevention Council has a helpful booklet on preventing identity theft. You can download a copy here.
What To Do If Your Information Was Stolen
If you receive a letter from the IRS telling you there’s a problem with your return, you need to get in touch with them as soon as possible. You’ll need to fill out Form 14039, IRS Identity Theft Affidavit, and fax or mail it to them. You will also need to provide a copy of a document showing proof of your identity, such as your passport, driver’s license or Social Security card. Because your Social Security number was used, you will also want to file a police report and check your credit report for fraudulent activity. You should also file an identity theft complaint with the Federal Trade Commission (FTC) at ftc.gov/complaint or 1-877-438-4338, and might consider putting a fraud alert on your credit report.
You can call the IRS Identity Protection Specialized Unit at 800-908-4490 if you think your identity may be at risk of being compromised because you lost your credit cards or other personal items. And be sure to document all of your actions such as phone calls made and letters sent.
Control Your Refund
Arrange your tax situation so that you don’t get a refund, or just get a small one. Speak with your accountant or Wealth Manager to know what your withholdings should be or how much you should be paying in estimated taxes, so that you get a refund of less than $1,000 (or owe less than $1,000). And ask how the IRS safe harbor rule applies to your particular situation.
Copyright: eric1513 / 123RF Stock Photo