5 Things You Need to Know About Tax Refund Theft

Someone could be pocketing your tax refund this year.

As unlikely as it sounds, it’s happening — and it’s happening more often, thanks to the growing problem of tax identity theft.

A Government Accountability Report in December reported the Internal Revenue Service identified 641,690 cases of identity theft involving tax fraud in the first nine months of 2012 — up 62 percent from the 232,142 incidents reported in the same period a year before.

Tax ID theft happens when an identity thief uses your taxpayer ID to fraudulently file taxes and claim a refund.

How do the fraudsters get your personal information?

They steal it from organizations that keep Social Security numbers, such as schools, banks or large employers. Or they just hack into the computer systems of those institutions.

Often, an identity thief will use a stolen Social Security number to file a forged tax return and attempt to get a fraudulent refund early in the filing season, according to the IRS.

In other words, the tax ID thieves are at work right now.

It happened to Christine Seymour, a Central Florida woman who reportedly had a $7,000 tax refund stolen from her after her identity was stolen by thieves.

“By the time I got my check, I was two months behind on my rent,” she said. “I had to catch up on all the bills, and me and my kids had gone without all year.”

Don’t let that happen to you. Here are five ways to avoid tax ID theft, according to the IRS and tax experts:

Protect your Social Security number.

Avoid carrying your Social Security card or documents that contain your Social Security number on it, and be choosy about who you offer your Social Security number to.

Give up the number only if you have to, like when you’re applying for a loan or renewing your license at the Department of Motor Vehicles.

Check your credit report regularly.

You can get a free credit report every year from each of the three major credit rating agencies: Equifax, Experian and TransUnion. That’s a good idea, because you’ll be able to tell if someone has stolen your identity by monitoring these reports.

The fastest way to get your credit report is online, through AnnualCreditReport.com. Avoid any sites that charge you for your report. You are entitled to a free copy once a year.

Keep your finances to yourself.

Any documents, old tax returns, or anything else that can be used by ID thieves to file a fraudulent return on your behalf, should be kept under lock and key.

The bad guys don’t need much to get started — an address, an account number or two, and a Social Security number. The less you reveal about yourself, the better.

Shield your computer.

You can protect your PC from a hacking attack by using firewalls and antivirus software.

More to the point, avoid giving anyone your personal information online unless you’re absolutely sure of that person’s identity. And that includes any stranger who promises to do your taxes on the cheap.

I’ve mentioned phishing attacks on several occasions in the past. Those can lead to an immediate financial loss, but also various kinds of identity theft.

Mum’s the word.

Phishing isn’t the only way the bad guys get your personal financial information. It can also be given by phone or in person.

Remember, any time someone can connect your name, Social Security number, and address, you have a potential problem, and the scammers are “media agnostic”, as they say. They’ll take your money any way they can.

What if you suspect your identity has been stolen?

Report it to the IRS immediately. If it’s too late, and someone has already filed a return and collected a refund that should have been yours, it could take up to a year to clear up, so you’ll want to get started right away by filing a police report.

Then, get in touch with any of the agencies that may be affected, including the Social Security Administration and the major credit bureaus.

Tax ID theft is probably going to get worse before it gets better, but if you work with an accountant you trust, safeguard your personal information and resist the lure of today’s phishing attacks, you’ll be safe.

Christopher Elliott is a consumer advocate who blogs about getting better customer service at On Your Side. Connect with him on Twitter and Facebook or send him your questions by email.