Stolen Identities and Federal Tax Returns: Is it really an issue?

By: Douglas Cash, MBA, CFE, CFI, CFCI

Most people have seen the movie "Catch Me If You Can" starring Leonardo DiCaprio from 2002 and are aware of how easy it can be to manipulate checks and become someone else. However, most people have no idea how wide spread identity theft actually is and how many areas of a person's life it can affect.

According to an article "Theft Tax Refund Fraud, A Growing Epidemic" published in the May/June 2014 issue of Fraud Magazine, the Internal Revenue Service (IRS) ranked this type of scam as the number one scam of 2013. The article also states that in 2011 the IRS began issuing Identity Protection Personal Identification Numbers (IPPIN) to victims of identity theft.

An article from Treasury Inspector General for Tax Administration stated the IRS issued 53,799 IPPINs during the 2011 tax filing season; 251,568 for the 2012 tax filing season, and 770,000 for the 2013 tax season. The increase is simply astonishing on its own. Furthermore, the report provides the following information of the Incidents and Affected Taxpayers of Identity Theft for calendar years 2009, 2010 and 2011:

The information shows the IRS is getting better at identifying potential fraudulent tax returns on their own but the number of incidents self-identified by taxpayers themselves also continues to grow. Unfortunately, there appear to be no end in sight for this type of scam. As long as tax refunds are issued, someone will find a way to manipulate the system. Taxpayers must take steps to protect themselves and their identities, the entire burden of combating this scam should not fall on governmental agencies.

How can you prevent identity theft?

As a retired detective and now a forensic accountant, I am asked: how does identity theft happen and how can we protect ourselves? When I first began investigating identity theft, issues revolved around the theft of checks, credit card applications stolen from the mail and personal information simply thrown in the trash. Over the years, individuals have become more concerned about having their identity stolen and have taken steps to protect themselves. Companies who have lost millions to identity thieves have also made changes in their products in an attempt to protect their clients and their identities.

However, in the social media dominated world we live in today, a person's personal information may be exposed more than ever. Companies' computer systems are hacked and personal information is being stolen. Criminal organizations are paying "inside people" in organizations to copy or steal personal information. This information is then used for many different areas of identity theft.

The bottom line is that individuals have to be extremely cautious about whom they provide their personal information to and must also demand that companies they do business with do everything in their power to protect personal information. This includes holding the people accountable who misuse our personal information, sell our personal information, or access our personal information for no legitimate reason.

Steps to take if you are a victim.

If you find you have been a victim of tax refund fraud, you need to contact the IRS and have an IPPIN issued. The IRS has a website to assist with the issuing of IPPINs. The website, "Get an Identity Protection Pin" can be accessed at http://www.irs.gov/uac/Get-An-Identity-Protection-PIN. The website shows a three-step process to follow to obtain your IPPIN.

Once this is done, you should also inform your personal accountant and file an informational report with their local law enforcement so that a police report is on file. This gives the investigating agency, whoever that might be, a starting point on when your identity was stolen.

We must all do our part to protect ourselves, our families, our businesses and our legacies from identity theft.

To learn more about how to protect yourself or business from identity theft, please contact your Eide Bailly representative.