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Regulation and Compliance > Federal Regulation > IRS

Help your clients prevent tax identity theft

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Tax-return fraud is on the upswing, according to federal authorities. This means your senior clients face greater risks that someone will attempt to file a fraudulent tax return with their name and Social Security Number (SSN). When they file their actual return, they may discover someone has already filed one—and collected a tax refund.

It’s no surprise this form of identity theft is rising. Consumers often don’t safeguard their Social Security numbers, and the IRS is ill-equipped in terms of staff and technology to prevent identity theft. Plus, older consumers may have cognitive deficits or are inexperienced with technology, making them susceptible to tax “phishing” scams.

The numbers tell the tale. The IRS processed about 145 million returns for tax-year 2011. As of May 2012, it had pulled 2.6 million returns for possible identity theft, with 1.5 million documented cases, representing theft of more than $5 billion. According to the Wall Street Journal, the National Taxpayer Advocate, an IRS watchdog group, has seen its identity-theft caseload increase by 650 percent since 2008.

If you hear of a client receiving an IRS notice to supply more data for a return they didn’t file, advise the person to contact the agency immediately. If their identity was in fact stolen, they will need to file a police report with the authentic tax return, along with IRS Form 14039 (“Identity Theft Affidavit”). The IRS will then issue a PIN to authenticate future tax returns.

However, this process will likely be upsetting to seniors for obvious reasons. It’s better to prevent tax identity theft in the first place. This involves becoming more vigilant about protecting one’s SSN. According to “The Journal of Accountancy,” financial advisors may want to educate their clients about the following techniques:

  • Never click on an e-mail coming from the IRS, even though it may look legitimate. And never provide any personal information in response to such e-mails.
  • Make sure all financial-services documents mask Social Security numbers whenever possible. The goal: to assure that SSNs are closely protected and invisible to potential scammers.
  • Sign up for credit-bureau monitoring from each of the three credit agencies.
  • Never ignore an IRS notice, especially one requesting additional data. Such correspondence often indicates unauthorized use of your identity and account.
  • Always store Social Security cards in a safe, secure location.
  • Never discard documents with SSNs without shredding them first.
  • Resist company requests to provide SSNs unless totally necessary.
  • Store sensitive financial documents in a locked file cabinet or safe.
  • Use firewalls and anti-spam/anti-virus software to protect information on personal computers. And always install software updates that patch security vulnerabilities.

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