Imagine this scenario. You have filed your tax returns and are anxiously awaiting your refund for some home improvements, or a long planned family vacation. Months go by since your filing date, and you still have not received your tax refund. When you contact the IRS you are told that the refund was already sent… to someone who had filed a fraudulent return under your name!

That is just one of the many nightmares that can happen when you become a victim of identity theft.

Identity theft is on the rise. In fact, according to a report from Javelin Strategy & Research, in 2016, losses from fraud and identity theft reached an all-time high in 2016 of nearly $16 billion. That’s up 16 percent from 2015, and the highest figure recorded since the firm began tracking fraud instances in 2004. Anyone can be the victim of identity theft, it does not matter how much money or assets you may or may not have.

Dealing with the very real possibility of identity theft, takes a three-pronged approach of: Prevention, Monitoring and Response.

Prevention

There are many things you can and should do to lessen your risk of identity theft. Here are some suggestions to protect yourself from identity theft as offered by the Federal Government:

  • Don’t respond to unsolicited requests for personal information (your name, birthdate, social security number, or bank account number) by phone, mail, or online.
  • Contact the three credit reporting agencies to request a freeze of your credit reports.
  • Collect mail promptly. Place a hold on your mail when you are away from home for several days.
  • Pay attention to your billing cycles. If bills or financial statements are late, contact the sender.
  • Enable the security features on mobile devices, especially if you have contacts, banking websites and applications saved.
  • Secure your social security number (SSN). Don’t carry your social security card in your wallet or write your number on your checks. Only give out your SSN when absolutely necessary.
  • Update sharing and firewall settings when you’re on a public Wi-Fi network. Consider using a virtual private network, which can give you the privacy of secured private network.
  • Review your credit card and bank account statements. Promptly compare receipts with account statements. Watch for unauthorized transactions. Be particularly vigilant with the use of debit cards. Your exposure can be much greater when using a debit card, than a credit card, particularly if you delay reporting the incident, you can potentially face unlimited exposure.
  • Shred receipts, credit offers, account statements, and expired credit cards, to prevent “dumpster divers” from getting your personal information.
  • Store personal information in a safe place at home and at work.
  • Utilize firewall and anti-malware software on your home computer. Create strong and secure passwords. Change your passwords if a company that you do business with has a breach of its databases

In addition we also suggest that you:

  • Restore old computers to factory settings. Whether you’re selling an old computer, recycling it, or throwing it away, make sure you get rid of it safely. Restoring it to factory settings ensures all of your information is gone. Do the same with any mobile devices.
  • Encrypt your hard drive. Most computers, regardless of the operating system, have an option that allows you to easily encrypt the information on your hard drive. Check the security tab in your settings and follow the prompts to activate encryption.
  • Be security smart when shopping on line. Always verify security symbols and encryption before entering any credit or identification details. You also want to check the URL and make sure it’s legit – avoid using links from an unsolicited email. Never store your credit card information on a shopping site, it may make your next purchase easier, but your information can be stolen if the retailer is hacked.

Prevention and Your Federal and State Tax Returns

Preventing ID theft is critically important as regards income tax fraud.

In an effort to stem the tide of identity theft the IRS has recently launched a program of obtaining an IP PIN. An IP PIN is a six-digit number assigned to eligible taxpayers that helps prevent the misuse of their Social Security number on fraudulent federal income tax returns. Follow this link to check your eligibility, and for details about how to apply for an IP PIN.

If you have become a victim of identity theft, you are encouraged to call the IRS and State authorities to speak to a representative. The agent may make notes that can become part of your record with them, and support your claim of a legitimate return if a false return is filed in your name.

IRS Form 14039 is used to report an incident of identity theft or an incident that may result in a possible identity theft issue. The IRS takes between 4 to 6 months or longer to process these forms. During that period, taxpayers may not be able to file electronically and refunds may be delayed until this process has been finalized. This form may be required in order to obtain an IP PIN (see above).

States that have an income tax, may require their own forms to be filed. For example, New York State Form DTF-275 – Identity Theft Declaration – is used to report an incident of identity theft or an incident that may result in a possible identity theft issue.

If you believe you need to file these forms, you are encouraged to speak with your accountants and tax advisors for help in doing so.

The IRS has provided this specific phone number to call to discuss identity theft issues: 1-800-908-4490.

Monitoring

Companies with some familiar names may bill themselves as offering “Identity Theft Protection Services,” but what these companies actually offer to varying degrees is identity theft monitoring and recovery services. No company can actually “protect” you from identity theft. Still that does not mean that these services are not of value, in fact they can be very useful in identifying if your information has been compromised, and in helping you mitigate the damages.

There are two types of monitoring services, credit monitoring and identity monitoring.

Credit monitoring:

Tracks activity on your credit reports at one, two, or all three of the major credit reporting agencies (CRAs) — Equifax, Experian, and TransUnion. If you spot activity that might result from identity theft or a mistake, you can take steps to resolve the problem before it grows. Understand that credit monitoring only warns you about activity that shows up on your credit report. But many types of identity theft won’t appear. For example, credit monitoring won’t tell you if an identity thief withdraws money from your bank account, or uses your Social Security number to file a tax return and collect your refund. That is why we recommend you use a service that provides both credit monitoring and identity monitoring.

Identity monitoring:

Alerts you when your personal information — like your bank account information or Social Security, driver’s license, passport, or medical ID number — is being used in ways that generally don’t show up on your credit report, such as to open new utility or cable accounts, apply for payday loans, or request a change of address.

Not every so called “ID Theft Protection” or “Monitoring Service” provides both types of monitoring. Before you engage the services of any monitoring firm, be sure to ask exactly what kinds of abuse or breach of your information they are checking for, and how often.

Even if you are using a monitoring service, understand that preventing identity theft is an ongoing personal responsibility. Whether you are using a monitoring service or not, you need to be aware of these signs that you may be the victim of Identity theft:

  • You see withdrawals from your bank account that you can’t explain.
  • You stop receiving your bills or other mail.
  • Debt collectors call you about debts that aren’t yours.
  • You find unfamiliar accounts or charges on your credit report.
  • Medical providers bill you for services you didn’t use, or your health plan rejects your legitimate medical claim because the records show you’ve reached your benefits limit.
  • The IRS notifies you that more than one tax return was filed in your name, or that you have income from an employer you don’t work for.
  • You get notice that your information was compromised by a data breach at a company where you do business or have an account.

Response

The third, and perhaps most important aspect of your identity theft prevention and recovery strategy is to report becoming a victim ASAP!

There are FOUR immediate steps you should take:

  • Step 1 – place a fraud alert in your credit report by contacting one or all three of the major credit reporting agencies – Equifax, Experian, and TransUnion – it doesn’t matter which one you contact. Once you place the fraud alert with one, they are required to contact the other two. A fraud alert requires creditors who check your credit report to take steps to verify your identity before opening a new account, issuing an additional card, or increasing the credit limit on an existing account based on a consumer’s request.
  • Step 2 – you should file a police report and a theft report with the Federal Trade Commission, (FTC). You should contact directly any agencies that may be directly involved with the information that was compromised, i.e: the Post Office, Social Security Administration etc. If you were alerted by fraudulent charges on a specific account, of course, shut down that account, and look at all other credit card accounts, for fraudulent charges, and/or bank accounts for unauthorized withdrawals.
  • Step 3 – Contact the Internal Revenue Service and State authorities and consider the filing of identity theft declarations with your tax advisor(s) (see above for details).
  • Step 4 – go back and review the “prevention” section and see if there is an area where you were lax, and need to strengthen, and if you are not already, sign up for monitoring services. Often, after a major data breach, as a victim, the company involved may even offer you free credit monitoring service for a period of time.

What Action Should You Take Right Now?

The bottom line is, everyone needs to take the threat of ID theft very seriously. The first thing you should do is make sure you are following all the steps in the prevention section. Then, we suggest you remain as proactive as possible by signing up for one of the credit monitoring services, and finally learn to recognize the signs that you may be a victim, so that you can respond as soon as possible.

Contributing Authors: Stefanie Lawless and Griseledy Uriondo