Think Taxpayer Identity Theft Could Never Happen to You? Think Again

Tax refund fraud losses could reach $21 billion in 2016

Nearly two-thirds of Americans in a new survey say they aren’t worried about their identities being stolen during tax season.

They’re taking an “it could never happen to me approach,” IDT911, a data security and identity theft protection firm, reported this week.

This laxness shows up in various forms. Forty-nine percent of respondents said they did not lock their mailbox when they were expecting to receive a refund through the mail, leaving personal information exposed to possible theft.

Nineteen percent said they had not ensured that their Wi-Fi network was password protected if filing online from home, making them easy marks for hackers.

And just 12% planned to file in January, while the rest ignored expert advice that early filers can stay a step ahead of identity thieves as they gear up for the tax season.

In any event, 48% of Americans believed that the holiday shopping season was the riskiest time of year, with only 30% saying it was tax filing season.

The survey also found that 38% of respondents, including 92% of millennials, did not know how to vet a tax preparer’s credibility.

Fifty-two percent said they did not trust, or were unsure about the trustworthiness of, online tax services. IDT911 said this was likely due to recent data breaches of multiple providers.

The findings were based on a Google Consumer Survey of some 1,500 consumers in the U.S., aged 18 and older.

IDT911 said its tax fraud center had seen a 154% year-over-year increase in tax-related cases in 2015, owing to Americans’ failure to protect personal information and identity thieves’ growing sophistication.

It noted that tax refund fraud losses could amount to $21 billion by 2016, citing an estimate by the Treasury Inspector General for Tax Administration.

The Federal Trade Commission recently announced that identity theft complaints had increased by 47% in 2015, with tax refund fraud being by far the biggest contributor.

How to Respond

IDT911 found that many Americans were unprepared to respond to an identity thief’s attack. Thirty-eight percent of respondents did not know whether their financial services or insurance providers offered identity theft or fraud protection services.

At the same time, 57% said they would first turn to their financial institution once they had learned they were the victim of a data breach, indicating, IDT911 said, that consumer demand for these resources would continue to grow.

As well, a strong need exists to educate customers about how to deal with tax-related identity theft.

IDT911’s chairman and founder Adam Levin said, “Consumers need to combat fraud by following the three M's: Minimize their risk of exposure, monitor their bank and credit card accounts on a daily basis and know how — or where — to find professionals who can help them effectively manage the damage, by using resolution resources provided by financial services institutions, insurance providers, and the HR departments of their employers.”

-- Check out Maximizing Clients’ Income Tax Savings: Deducting Your Fee on ThinkAdvisor.

-- See ThinkAdvisor’s complete tax planning lineup on our 23 Days of Tax Planning Advice: 2016 home page.

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