How to Help Your Clients Avoid Tax-Related Identity Theft

It’s that time of year again: tax season. Most likely, your clients have already started thinking about their taxes. Unfortunately, there’s another group just waiting in the wings: identity thieves.

As you can imagine, there’s a significant increase in the sharing of sensitive information—both online and via mail—during tax season. For crooks and scammers, this presents an ideal time to steal your clients’ personal information and possibly their identities.

So, can you help your clients avoid tax-related identity theft? To answer this question, let’s start by defining the problem and then covering some possible solutions.

In 2015, many Americans fell victim to a major data breach. Their personal information was exposed, and identity thieves capitalized on the opportunity. For 2016, the IRS expects refund fraud to hit an astounding $21 billion. But what exactly happens when someone is the victim of tax-related identity theft?

In short, tax-related identity theft is when a thief uses someone else’s social security number to file a fraudulent tax return and collect a refund. As a result, when the real taxpayer files, he or she will receive a notice from the IRS stating that a return has already been submitted under that social security number. To make matters worse, if an identity thief beats your client to the punch and files a phony return using your client's information, the remediation process can take at least six months, and usually even longer.

To help your clients save the time and money wasted as a result of this all-too-common situation, let’s look at the best ways to help them avoid it.

To protect your clients against the filing of a fraudulent tax return, there are a few things you can recommend:

Early filing. The faster your clients get their taxes in, the less time an identity thief has to file a tax return in their name.

Security. If your clients file online, they should use only a secure Internet connection. If they file by mail, encourage them to bring their returns directly to the post office rather than just dropping them in the mailbox.

Document shredding. Any mail or other documents containing personal or financial data should be shredded. Thieves will stop at nothing to get this type of information, which includes rummaging through the trash!

Personal information. Whether online, over the phone, or by mail, your clients should never provide their personal information—unless they initiated the contact using a number they know belongs to the person or entity they intended to call. If they do receive a message asking for personal information, they should call that entity on a verified number to confirm the legitimacy of the request.

Theft protection services. Beyond typical credit monitoring, theft protection services can track personal information across the Internet and public databases. If suspicious activity is encountered, clients will be alerted. Further, an insurance policy will be provided to repair damage in the event that an identity is stolen.

As you help your clients prepare for tax season, here are some key points you should discuss with them: 

• The IRS will never contact taxpayers via e-mail, and it very rarely contacts them by phone.
• If your client receives a mail notification from the IRS, he or she should call the local IRS branch for additional information.
• If your client does become a victim of identity theft, advise him or her to report it immediately to the Federal Trade Commission and to follow the steps at IdentityTheft.gov.
• For more information, including ways to reduce the risk of tax-related fraud, encourage your clients to visit the IRS’s Taxpayer Guide to Identity Theft.

With these tips, you can help your clients protect their information not only at tax time but year-round. The most important thing to remember is that everyone—you and your clients—should be vigilant about how and with whom sensitive information is shared.

Have any of your clients been victims of tax-related identity theft? How do you help your clients avoid this situation throughout the year? Please share your thoughts with us below.