By Tim Parker
It's the 21st century version of riding in on a horse with a Colt .45 and robbing a bank: online identity theft.
The Internet serves many good purposes, but it also makes it easier for thieves to steal your information. In 2012, there were 13 million victims of identity theft. To put some perspective on the enormity of the crime, if a state were populated with last year's victims, it would be the fifth-largest state in the country.
Identity thieves love tax season. CNN reports that thieves can easily obtain personal information such as Social Security numbers from online databases, hospitals, car dealerships and any other business that stores personal information.
Next, the thieves file an online tax return with the stolen information and fake income figures. Then, the criminals purchase a debit card and have the refund loaded onto the card. Since the IRS doesn't verify the return until after it sends the refund, the thieves have already spent the money and fled before the IRS can take the money back.
TIME Magazine reports that some thieves set up websites claiming to be tax preparers. They offer to prepare customer returns for a bargain price, but instead of preparing the return on behalf of the customer, the thief uses the customers' personal information to file fictitious returns and pocket the refunds.
How Bad is It?
According to TIME, as of September 2012, the IRS was trying to solve 650,000 cases of identity theft with only 3,000 workers. Victims who contact the IRS have to wait an average of 204 days before the IRS even acknowledges the complaint. Because this often puts the IRS more than a tax season behind in solving the issue, consumers may fall prey the following year as thieves attempt to use the victim's identifying information again.
As the cliche goes, the best defense is a good offense. That said, here's how to reduce the chances of falling victim to identify theft during tax season.
Don't Respond to Online Requests
Have you received an email from the IRS saying that they need more information about you or that you're being electronically audited? Don't respond. According to the IRS website, it doesn't attempt to make contact with taxpayers through electronic means including email, social media or text messages.
If you receive an email stating that it's from the IRS, forward it to the IRS at firstname.lastname@example.org.
Contact IRS Directly
Legitimate correspondence from the IRS will come via postal mail but that doesn't mean that all the mail you receive is real. If you suspect that the letter is a fake, go to the IRS website and find the phone number of the nearest IRS office. Contact them to make sure the information you received is real. Don't call the number that is on the letter until you find that it matches a number on the IRS website.
If you're one of those people who waits until April to file your taxes, make a change next year. If you file your return before the thieves file their returns, they have nothing to take.
Watch Your Mail Closely
Postal mail is dying a slow death and as a result, consumers don't check it as closely as in the past. If a fictitious return was filed before or after you filed yours, the IRS will send you a letter notifying you of the problem. That might be the only way you know you're a victim.
Order a Transcript
Did you know that you can order a copy of your tax return? Go to the IRS website to order a transcript and compare it to your personal records. If the returns don't match, contact the IRS immediately.
Protect Your Information
Identity thieves are sophisticated and may get your information despite your best efforts. That doesn't mean, however, that common sense precautions don't work. Don't carry your Social Security card, don't enter personal information on a site that doesn't have a web address that starts with "https," and don't provide identifying information to anybody that you're not sure you can trust.
Finally, order your free credit reports online at annualcreditreport.com each year and verify that all listed accounts are accurate.
What if You Are a Victim?
If you suspect that you're a victim of identity fraud relating to your tax return, go to the IRS website and complete Form 14039. The form asks you to provide information about your case including why you believe you're a victim, the tax years affected and personal identifying information. Along with the form, submit one or more of the following: passport, Social Security card, driver's license or government-issued ID.
You can also use form 14039 to alert the IRS if you are a victim of identity theft outside of your tax returns.
The Bottom Line
TIME reports that although identity theft is rampant, most occurrences don't involve tax returns. Regardless, being active in protecting your identity is the best defense you can take. Keep a close eye on your credit reports, credit card statements and other financial information. Furthermore, don't give your personal data to just anybody who asks. If it's a person or business you don't trust, pay in cash.
Originally posted on Investopedia.com
INVESTOPEDIA ULC ©2013