Your Money by Allan Cornman: Tax refunds are vulnerable to identity theft

Allan Cornman

Hollywood may have just produced a film playing on the issue, but real identity theft is no laughing matter. Victims are devastated by decimated bank accounts, destroyed credit scores and an intrusion on their privacy. Our growing reliance on electronic data and systems has increased our vulnerability and created new opportunities for identity theft in unexpected places—including your federal tax refund.

According to the House of Representative’s Committee on Oversight & Government Reform, identity theft-related tax fraud is a growing problem. The crime works like this: a thief steals a Social Security number and then diverts the individual’s tax refund into a personal account that is quickly drained before the victim is aware of the theft. The fraud may not be discovered until the taxpayer attempts to file a return or claim a refund, and it can take months for the IRS to investigate and return the funds to the rightful owner.

The IRS has recently doubled its efforts to prevent this type of fraud and address victim concerns, but you should also take some steps to protect yourself. Your best defense is to prevent your personal financial information from falling into the wrong hands. Here are some guidelines for protecting yourself from tax refund fraud.

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Protect your Social Security number. Your government-issued identification is prized information to thieves intent on opening fake accounts and claiming refunds that don’t belong to them. Keep your card in a safe place in your home rather than in your wallet and don’t provide your number unless absolutely necessary.

Monitor your financial accounts. Check your account balances and transactions regularly to spot unauthorized activity.

Check your credit reports. You are entitled to a free credit report annually from each of the three major credit bureaus: Experian®, Transunion® and Equifax®. If you notice adverse credit actions or accounts that you did not open yourself, take action.

Keep financial documents secure. Keep hard copies of your returns under lock and key, and shred statements you no longer need. Criminals have been known to go through personal trash in pursuit of financial records.

Take extra care online. Maintain a firewall on your personal computer and avoid accessing your financial information on open networks. Clear your browser history and “cookies” (the little files that remember passwords or previous visits to websites) before and after e-filing your taxes or visiting financial sites that contain your private information.

Beware phishing schemes. “Phishing” is a method of falsely soliciting information with criminal intent. Identity thieves have become more sophisticated, using design programs to replicate logos and create emails and even websites that look legitimate, but are not. If you receive an email that appears to be from the IRS—or any institution, for that matter—that contains a request for your social security number or financial accounts, it is probably a phishing scam that should be forwarded to the agency it is attempting to represent.

Contact the proper authorities if you suspect you’ve been a victim of identity theft. If your tax refund is involved, notify the IRS by completing IRS Identity Theft Affidavit (form 14039), which can be found at irs.gov. Also contact your bank, credit card companies and the local police. Talk to your financial advisor for additional help establishing safeguards for your financial information.

Allan W. Cornman, CFP is a Financial Advisor and Certified Financial Planner practitioner with Ameriprise Financial Services, Inc. in Reading and Schuylkill Haven. He specializes in fee-based financial planning and asset management strategies and has been in practice for 16 years. Contact him at 610-926-6649 or ameripriseadvisors.com/allan.w.cornman.

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