After several states suspended
e-filing through the popular online tax preparer, TurboTax itself
temporarily pulled the plug on its state tax return e-filing services last week
due to security concerns.
The company, owned by Intuit,
which also owns QuickBooks, Mint, Quicken and a variety of other personal
finance and small business
accounting products, resumed all regular services the following day.
(Disclosure: The author owns a small amount of stock in Intuit.)
Julie Miller, a spokeswoman for
Intuit, says TurboTax has implemented a series of enhanced security measures,
which includes multistep authentication, similar to the protections used by
banks and financial institutions. All state tax departments have resumed
accepting returns filed through TurboTax, Miller says.
Although the interruption sent
shock waves through the industry, as many suspected a cyber breach, TurboTax
later said that the company’s system had not been compromised. Instead,
scammers had stolen personally identifiable information elsewhere, and used it
to file fraudulent returns. "We want to assure our customers and taxpayers
generally that TurboTax is safe and secure, and we’ve taken every necessary and
appropriate action to safeguard customers’ information," Miller says.
Despite the assurances, TurboTax's troubles confirmed what
fraud experts had been saying for years, that filers should be aware that tax
returns are prime ground for hucksters and thieves.
Ease of
Filing = Ease of Theft
For many Americans, late winter
and early spring are just the beginning of the tax preparation process of
receiving 1099 and W-2s, gathering receipts, contacting accountants or choosing
an online tax preparer. But identity theft expert Steve Weisman, author of
“Identity Theft Alert: 10 Rules You Must Follow to Protect Yourself from
America's #1 Crime” and “50 Ways to Protect Your Identity in the Digital Age,”
says many tax identity thieves act on the first day of filing on Jan. 20, when
taxpayers are most vulnerable.
"We know the issue: that
anyone can steal a Social Security number, file electronically, and all the
things that are being done by the IRS and Congress to make things easy for
taxpayers are making it even easier for the fraudsters," Weisman says.
And it's not just the IRS and
Congress. Many companies strive to ease the burden of filing, and that
convenience can come with a price. Taxpayers who file their taxes via mobile,
tablets and apps, sometimes on shared wireless networks, need to be especially
diligent about their security.
"One of the primary
factors of tax identity theft and fraud is that you can e-file behind a
computer screen, which is really convenient if you're going to do something
illegal," says Matt Davis, a spokesman for the Identity Theft Resource
Center. "If you're a victim of tax identity theft, you're most likely
going to be a victim of the other kinds."
Both Weisman and Davis say
that, aside from protecting personal information and Social Security numbers
year-round, the single most important step in preventing tax-related identity
theft is to file a tax return as early as possible.
"The IRS doesn't
independently verify tax returns. They only know there's a problem once they've
received a second return under the same Social Security number," Davis
says. "If you're the first one in the door, you're going to have your
taxes filed correctly. "
Weisman says that once a
fraudulent tax return is filed, gaining access to an ill-gotten refund is
fairly easy. "Identity thieves are able to file electronically, the
refunds are sent either to a bank electronically or via a prepaid debit or
credit card, or sent the old way with a check, which can then be fraudulently
cashed," he says.
In addition to filing early, the Federal Trade Commission
offers these tips to prevent identity theft:
• Use a secure
Internet connection if you file electronically, or mail your tax return
directly from the post office.
• Shred copies
of your tax return, drafts or calculation sheets you no longer need.
• Respond to
all mail from the IRS as soon as possible.
• Don’t give
out your Social Security number unless necessary.
• Research a
tax preparer thoroughly before you hand over personal information.
• Check your
credit report at least once a year for free at annualcreditreport.com to make
sure no other accounts have been opened in your name.
• And this
important reminder: The IRS does not ever contact taxpayers by email, text or
social media, only via regular mail. Any other forms of contact are fraudulent
and should be reported.
If Your
Information Has Been Compromised
Once a Social Security number
has been compromised for tax fraud, it's extremely likely that it will be used
for other types of fraud, including credit card and medical. People who have
been victims of tax identity theft should take a sweeping response to the theft
by notifying their banks, credit card companies, credit reporting agencies and
the proper local and federal authorities. Weisman recommends voluntarily
freezing credit reports to prevent new, fraudulent accounts from being opened
with a stolen Social Security number. Such freezes can be easily removed and
replaced for legitimate purposes.
"If you've been a victim
of tax fraud, you need to check your credit reports. It's also a good idea to
get a pre-emptive police report, and put alerts on all your accounts,"
Davis says. "Notifying law enforcement at the outset goes a long way to
establishing your credibility with anyone you're going to have dispute the
fallout of the fraud with."
The good news is there is no shortage of helpful information
for tax filers. The FTC offers tips for preventing tax identity theft on its
website, as does Weisman's blog, Scamicide.
Taxpayers who suspect they've
been victims of identity fraud should call the IRS Identity Theft Protection
Specialized Unit at 1-800-908-4490 with a copy of a police report, the
completed IRS affidavit (Form 14039), and state-issued identification. More
information can be found in the Taxpayer Guide to Identity Theft on the IRS
website.
