TIP = Tax Identity Protection

I recently did a post on avoiding identity theft when e-filing your tax return, but apparently I underestimated the risks associated with taxes and identity theft.  The General Accounting Office has issued a new report on the topic of Taxes and Identity Theft, and it’s not fun reading.  (OK I’ll admit it’s not a high potential topic for fun – but this is even worse than it seems.)  The report says it happens frequently and the IRS is ill prepared to deal with it.  That means, unwinding the case of mistaken identity will be particularly difficult with the IRS.  Yikes!

Apparently based on constituent complaints, Senator Bill Nelson from Florida (a place with lots of credit card fraud, at least when I lived there) held hearings on what the IRS is doing about the problem.  According to the government’s Taxpayer Advocate, they are trying.  The IRS now has a system that marks the returns associated with identity theft.  The idea is to let customer service reps know this is a special case.  Unfortunately, based on the testimony of the victims at the hearing, the improvements haven’t begun to solve their issues. Even the person brought in to talk about the positive side of the IRS work in this area told Congress the agency is “struggling to effectively manage identity theft cases.”  If that’s the rose colored glasses view, I’m getting nervous.

Police Chief Magazine has an article on protecting yourself from this problem. (After reading accounting journals one has to find some more exciting publications to peruse.)  Their advice is:

• Make sure you keep tax related documents in a safe place.  In particular they recommend guarding W-2s and 1099 forms.  Also, don’t leave these items in a brief case or car.
• Shred paperwork associated with your tax return that you don’t need. 
• Password protect tax related files on your computer. 
• Be careful when selecting someone to help you with tax preparation.  (Yes!)
• Use direct deposit for your refund checks. 

Last but not least, beware of IRS phsishing scams.  These tend to be successful because people get so anxious about being contacted by the IRS, they drop their guard.  The IRS does not initiate taxpayer communications through e-mail.  (It’s snail mail only. )  They also don’t conduct business via e-mail.

Last year alone the IRS identified 245,000 tax return related identity theft “incidents”.  It’s worth some hassle now, to avoid the problem.