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Identity Thieves Score Billions from the IRS and Taxpayers

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Every dollar counts, now more than ever, as the government searches for ways to wisely spend our money. It’s dismaying to learn that an audit report from the Treasury Inspector General for Tax Administration (TIGTA) has found that the impact of identity theft on tax administration is significantly greater than the amount the IRS detects and prevents. Even worse, the “IRS uses little of the data from identity theft cases…to detect and prevent future tax refund fraud” according to Mike Godfrey, Tax-News.

  • The IRS is detecting far fewer fake tax returns than are actually falsely filed. 938,700 were detected in 2011. On the other hand, TIGTA identified 1.5M additional undetected tax returns in 2011 with potentially fraudulent tax refunds totaling in excess of $5.2B.
  • The study predicted that the IRS stands to lose $21B in revenue over the next 5 years with new fraud controls, or $26B without the new controls.
  • Key victims include the deceased, children, or someone who would not normally file a return such as lower income individuals that are not legally required to file.
  • A Postal Inspector in Florida uncovered a tax refund scheme whereby refunds were going into debit-card accounts via thieves using the social security numbers (SSN) of dead people. Direct deposit is preferred as it doesn’t require a mailing address, photo ID, name or a trip to the bank.
  • The IRS allows multiple direct deposits to the same bank account. A key finding in the report showed hundreds of tax returns were filed from a single address. In one case, 2,137 returns resulted in $3.3M in refunds to a home in Lansing, Michigan, and 518 returns resulted in $1.8M in refunds to a home in Tampa, Florida.
  • The IRS lacks access to 3rd party information to verify returns and root out fraud. It is issuing refunds in January before it can verify data from employers and financial institutions in March. This gap provides a huge window of opportunity for thieves.
  • The IRS is not gathering enough information to prevent fraud; i.e., how the return is filed, income information on the W-2, the amount of the refund and where the refund is sent.
  • New screening filters that can identify false tax returns before they are processed have the potential to diminish the number of fraud cases as well as other ongoing anti-fraud procedures employed by the IRS. It is placing a unique identity theft indicator on the accounts of the deceased. As of March, 2012, 164,000 accounts were locked, possibly preventing $1.8M in fraud.

Charles Boustany, the US House of Representatives Oversight Subcommitte Chairman, who sent a letter to the IRS demanding a full accounting for the agency’s continued inability to stop tax fraud related to identity theft, declared that “this report raises serious questions regarding the IRS’s ability to detect tax fraud…”. The lost federal money is extremely troubling but there’s another loss to consider – the potential to erode taxpayer confidence in our system of tax administration.


John Sileo is an award-winning author and international speaker on the dark art of deception (identity theft, data privacy, social media manipulation) and its polar opposite, the powerful use of trust, to achieve success. He is CEO of The Sileo Group, which advises teams on how to multiply performance by building a culture of deep trust. His clients include the Department of Defense, Pfizer, the FDIC, and Homeland Security. Sample his Keynote Presentation or watch him on Anderson Cooper, 60 Minutes or Fox Business. 1.800.258.8076.

$10 Buys Thieves Access To A Dead Person's Identity

You may think your deceased loved ones are safe from having their identities stolen. Not true! The Death Master File contains data about millions of deceased people including the full name, Social Security number and other personal information. Though you’d think this would be carefully guarded, the Social Security Administration provides the file to the Department of Commerce’s National Technical Information Service (NTIS). NTIS, in turn, distributes it to more than 450 entities including state and local governments, hospitals, universities, financial institutions, insurance companies and genealogy services. Even worse, anyone can access the information through the NTIS website. The cost? $10 for one person or an annual subscription with unlimited access to all of the files of deceased individuals costs $995.

The Social Security Administration created the file to help financial institutions and businesses prevent identity theft by using the file to cross-reference applicants and customers to verify they’re not using a dead person’s identity. According to CNN Money, Senator Bob Casey, Democrat, Pennsylvania, said the agency is “inadvertently facilitating tax fraud” and has called for restrictions to be placed on access to the Death Master File. The IRS has been adding protections but it’s struggling to keep up with a surge in tax fraud. The Treasury Inspector General said in May that the IRS could end up doling out $26 billion in fraudulent refunds over the next five years. In a congressional hearing in May, IRS deputy commissioner Steven Miller said that as of mid-April, his agency had already flagged 91,000 tax returns that were filed under the names of recently deceased individuals.

About 2.4 million deceased Americans each year get their identities stolen according to ID Analytics. Besides taking revenue from the government, thieves steal the personal information to apply for credit cards, cell phones and anything that requires a credit check. And think of the toll it takes on the families that have just lost a loved one. Their grief is compounded by having to rescue that person’s identity. 

Because of the Freedom of Information Act, it’ll take legislation to restrict access to the file unless the Office of Management and Budget finds a way to limit access and cut down tax fraud. The best action you can take to protect your private information while you’re alive (and that will carry over in death) is to freeze your credit. A credit freeze is simply an agreement you make with the three main credit reporting bureaus (Experian, Equifax and TransUnion – listed below) that they won’t allow new accounts (credit card, banking, brokerage, loans, rental agreements, etc.) to be attached to your name/social security number unless you contact the credit bureau, give them a password and allow them to unfreeze or thaw your account for a short period of time. Yes, freezing your credit takes a bit of time (maybe an hour of work), can be a little inconvenient when you want to set up a new account (that said, let’s face it, businesses want to make it as easy as possible to unfreeze your credit because they benefit when you set up new accounts and spend more money) and it can cost a few dollars (generally about $10 to unfreeze, a small price compared to the recovery costs of identity theft). And it is worth it! It’s like putting locks on your doors.

Since all states don’t allow you, by law, to freeze your credit, the three credit reporting bureaus have begun to offer credit freezes on a national basis. This is a major step forward in the prevention of identity theft, even if they are offering it for profit reasons (they make money every time you freeze/unfreeze your credit). If your state does not currently offer credit freezes by law, you can now apply with each credit reporting bureau individually. Regardless of where you live, freeze your credit today.A credit freeze doesn’t affect your existing credit – it doesn’t freeze credit cards, bank accounts or loans you already have. It only freezes access to your account unless someone has a password to get in. It’s like having a PIN number on your ATM card. It also doesn’t lower (or raise) your credit score.

Equifax Credit Freeze
P.O. Box 105788 Atlanta, Georgia 30348
Toll-Free: 1.800.685.1111

TransUnion Credit Freeze
Fraud Victim Assistance Department P.O. Box 6790 Fullerton, CA 92834
Toll-Free: 1.888.909.8872

Experian Credit Freeze
P.O. Box 9554 Allen, TX 75013
Toll-Free: 1.888.397.3742

Protect Your Taxes from Prying & Spying Eyes

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The IRS admittedly has little control over protecting your tax returns against identity theft. The problem is too big, the data too widely available, prevention too rarely attended to until it’s already too late.
Your tax returns are the Holy Grail of identity theft because they contain virtually every piece of information a fraudster needs to BECOME you. But you don’t have to be a victim; you simply need to take responsibility for what is rightfully yours – your tax return information and your identity. The changes aren’t difficult, they simply require you read through this document so that you recognize the risks. Once that’s done, you simply avoid the highest-risk behaviors.

Here is a comprehensive list of frauds, scams and high risk tax-time practices.

Top Tips for Tax Time Identity Theft Protection

One of the least recognized risks for identity theft during tax season comes from your tax preparer (if you use one) either because they are dishonest (less likely) or because they are careless with your sensitive documents (more likely). Just walk into a tax-preparers office on April 1 and ask yourself how easy it would be to walk off with a few client folders containing mounds of profitable identity. The devil is in the disorganization. Effective Solutions:

  • Choose your preparer wisely. How well do you know the person and company preparing your taxes? Did they come personally recommended, or could they be earning cash on the side by selling your personal information. Do they have an established record and are they recommended by the Better Business Bureau?
  • Interview your preparer before you turn over sensitive information. Ask them exactly how they protect your privacy (do they have a privacy policy?). Are they meeting with you in a room full of client files, or do they take you to a neutral, data-free, conference room or office? Do they leave files out on their desk for the cleaning service to access at night, or do they lock your documents in a filing cabinet or behind a secure office door? Do they protect their computers with everything listed in the next section?
  • Asking professional tax preparers these questions sends them a message that you are watching! Identity thieves tend to stay away from people they know are actively monitoring for fraud. Remember, losing your identity inside of their accounting or bookkeeping business poses a tremendous legal liability to their livelihood.
  • Make sure you always (not just at tax time) pay with security checks.

Secure Computers. Last year, more than 80 million Americans filed their tax returns electronically. To prevent electronic identity theft, you must take the necessary steps to protect your computer, network and wireless connection. Additionally, your tax preparer should be working only on a secured computer, network and internet connection. Hire a professional to implement the following security measures:

  • Strong alpha-numeric passwords that keep strangers out of your system
  • Anti-virus and anti-spyware software configured with automatic updates
  • Encrypted hard drives or folders (especially for your tax preparer)
  • Automatic operating system updates and security patches
  • An encrypted wireless network protection
  • A firewall between your computer and the internet
  • Remove all file-sharing programs from your computer (limewire, napster, etc.)

Even though you use a strong password to protect your data file when e-filing, burn the file to a CD or flash drive once you’ve filed. Remove the personal information from the hard drive. Store the backup in a lock box or safe.

Private information should be transmitted by phone using your cell or land line (don’t use cordless phones). In addition, never email your private information to anyone unless you are totally confident that you are using encrypted email. This is a rarity, so don’t assume you have it. In a pinch, you can email password protected PDF documents, though these are relatively easy to hack.

Stop Falling for IRS Scams. We have a heightened response mechanism during tax season; we don’t want to raise any red flags with the IRS, so we tend to give our personal information without much thought. We are primed to be socially engineered. Here’s how to combat the problem:

  • Make your default answer, “No”. When someone asks for your Social Security Number or other identifying information, refuse until you are completely comfortable that they are legitimate. Verify their credentials by calling them back on a published number for the IRS.
  • If someone promises you (by phone, fax, mail, or in person) to drastically reduce your tax bill or speed up your tax return, don’t believe them until you have done your homework (call the IRS directly if you have to). These schemes flourish when the government issues economic stimulus checks and IRS refunds.
  • If anyone asks you for information in order to send you your check, they are scamming for your identity. The IRS already knows where you live (and where to send your rebate)! By the way, the IRS will NEVER email you for any reason (e.g., promising a refund, requesting information, threatening you).
  • To learn more about IRS scams, visit the only legitimate IRS website. If you are hit by an IRS scam, contact the IRS’s Taxpayer Advocate Service.
  • If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or credit report, you need to provide the IRS with proof of your identity. You should submit a copy of your valid government-issued identification, such as a Social Security card, driver’s license or passport, along with a copy of a police report and/or a completed IRS Form 14039, Identity Theft Affidavit, which should be faxed to the IRS at 978-684-4542. Please be sure to write clearly.
  • As an option, you can also contact the IRS Identity Protection Specialized Unit, toll-free at 800-908-4490. IPSU hours of Operation: Monday – Friday, 7:00 a.m. – 7:00 p.m. your local time (Alaska & Hawaii follow Pacific Time).
  • If you have information about the identity thief that impacted your personal information negatively, file an online complaint with the Internet Crime Complaint Center.  The IC3 gives victims of cyber crime a convenient and easy-to-use reporting mechanism that alerts authorities of suspected criminal or civil violations. IC3 sends every complaint to one or more law enforcement or regulatory agencies that have jurisdiction over the matter.
  • Subscribe to an identity theft detection, protection and resolution product.

Mail Safely. A good deal of identity theft takes place while tax documents or supporting material are being sent through the mail. If you are sending your tax return through the mail, follow these steps:

  • Walk the envelope inside of the post office and hand it to an employee. Too much mail is stolen out of the blue USPS mailboxes and driveway mailboxes that we use for everything else to make them safe.
  • Send your return by certified mail so that you know it has arrived safely. This sends a message to each mail carrier that they had better provide extra protection to the document they are carrying.
  • Consider filing electronically so that you take mail out of the equation. Make sure that you have a well-protected computer (discussed above).

Shred and Store Safely. Any copies of tax documents that you no longer need can be shredded using a confetti shredder. Store all tax records, documents and related materials in a secure fire safe. I recommend spending the extra money to have your safe bolted into your home so that a thief can’t walk away with your entire identity portfolio. Make sure that your tax provider appropriately destroys and locks up any lingering pieces of your identity as well. Tax returns provide more of your private information in a single place than almost any other document in our lives. Don’t waste your tax refund recovering from this crime.

John Sileo is an award-winning author and international speaker on the dark art of deception (identity theft, data privacy, social media manipulation) and its polar opposite, the powerful use of trust, to achieve success. He is CEO of The Sileo Group, which advises teams on how to multiply performance by building a culture of deep trust. His clients include the Department of Defense, Pfizer, the FDIC, and Homeland Security. Sample his Keynote Presentation (he shares how he lost $300,000, 2 years and his business to data breach) or watch him on Anderson Cooper, 60 Minutes or Fox Business. 1.800.258.8076.

IRS Overwhelmed by Tax Related Identity Theft

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It’s nerve racking to realize that the IRS increasingly struggles to control taxpayer identity theft. Since 2008, the IRS has identified 470,000 incidents of identity theft affecting more than 390,000 taxpayers. “Victims of tax-related identity theft are the casualties of a system ill-equipped to deal with the growing proficiency and sophistication of today’s tax scam artists” said  Sen. Bill Nelson, who chairs the newly formed Subcommittee on Fiscal Responsibility and Economic Growth.

Identity theft harms innocent taxpayers through (1) employment and (2) refund fraud, according to the GAO. In refund fraud, an identity thief uses a taxpayer’s name and Social Security number to file for a tax refund, which the IRS discovers after the legitimate taxpayer files. In the meantime, the victim is out the money due her, causing Sharon Hawa of the Bronx, N.Y. to take on a second job. Ms. Hawa testified before the Subcommittee, describing how she had become an ID theft victim for the second time in three years (the first in 2009) after thieves twice filed tax returns in her name and received her tax refunds. Painstakingly proving her identity to the IRS, time after time over a 14-month period, was only a small part of the stress and utter frustration in the first fraud.  And  then, as if that trauma hadn’t sufficiently wreaked havoc in Ms. Hawa’s life, it happened a second time.

In employment fraud, an identity thief uses a taxpayer’s name and SSN to obtain a job. When the thief’s employer reports income to the IRS, the taxpayer appears to have unreported income on his or her return, leading to enforcement action. Think of your stress level when you open that envelope from the IRS demanding taxes for money you didn’t earn and don’t have!

The GAO states that the IRS’s ability to address identity theft issues is constrained by several factors, one being that privacy laws limit the sharing of ID theft information with other agencies. Another problem is the timing of fraud detection efforts; more than a year may have passed since the original fraud occurred.  The resources necessary to pursue the large volume of potential criminal refund and employment fraud cases are another constraint.

It’s imperative that we taxpayers take responsibility and implement the steps necessary to protect ourselves. There is very little that is more damaging and dangerous to your identity than losing your tax records. After all, tax records generally contain the most sensitive personally identifying information that you own, including Social Security Numbers (for you, your spouse and maybe even your kids), names, addresses, employers, net worth, etc. Because of this high concentration of sensitive data, tax time is like an all-you-can-eat buffet for identity thieves. Here are some of the dishes on which they greedily feed:

  • Tax documents exposed on your desk (home and work)
  • Private information that sits unprotected in your tax-preparer’s office
  • Improperly mailed, emailed and digitally transmitted or filed records
  • Photocopiers with hard drives that store a digital copy of your tax forms
  • Copies of sensitive documents that get thrown out without being shredded
  • Improperly stored and locked documents once your return is filed
  • Tax-time scams that take advantage of our propensity to do whatever the IRS says (even if it’s not really the IRS asking)
Your tax returns are the Holy Grail of identity theft because they contain virtually every piece of information a tax fraudster needs to BECOME you. But you don’t have to be a victim; you simply need to take responsibility for what is rightfully yours – your identity. Sileo.com has compiled a comprehensive list of tax time frauds, scams and prevention techniques.

John Sileo is an award-winning author and international speaker on the dark art of deception (identity theft, data privacy, social media manipulation) and its polar opposite, the powerful use of trust, to achieve success. He is CEO of The Sileo Group, which advises teams on how to multiply performance by building a culture of deep trust. His clients include the Department of Defense, Pfizer, the FDIC, and Homeland Security. Sample his Keynote Presentation (he shares how he lost $300,000, 2 years and his business to data breach) or watch him on Anderson Cooper, 60 Minutes or Fox Business. 1.800.258.8076.

Identity Theft of H&R Block Customers | Sileo Group

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The number of identity theft victims rose 22% last year! Although it’s important to always protect your identity, tax season makes people more vulnerable to this crime and you should be especially cautious.

H&R Block identity Theft

A recent article in the New York Times uncovers an H&R Block office in the Bronx that was infiltrated by identity thieves (apparently it was not the only office affected).

Last year, Kevin Johns, a construction worker in the Bronx, did his taxes at the H&R Block store on Riverdale Avenue that he had used for the past 20 years or so. The next day, though, he got a call from the tax preparer: his return was rejected because he had already filed. Or at least, someone had filed in his name. That someone helped himself or herself to a $8,499 refund.

Sharon Hawa, a disaster-relief coordinator with the Red Cross and another longtime customer at the same office, had a similar experience. Ms. Hawa said she went to have her taxes done, only to be told that someone had already e-filed her taxes and collected $6,145.

Both Ms. Hawa and Mr. Johns said they were told by police detectives investigating their cases that at least 20 customers of the branch and possibly many more had been robbed by identity thieves who were very likely H&R Block employees. Both said the fraudulent filers used their previous year’s adjusted gross incomes as proof of identity.

Top Tips for Tax Time Identity Theft Protection Safe Preparation

Your greatest risk of identity theft during tax season comes from your tax preparer. In this case it was because they are dishonest, but sometimes it is because they are careless with your sensitive documents. Just ask yourself how easy it would be for your tax preparer or anyone in their office to walk off with a few client folders containing mounds of profitable identity. Here are a few effective solutions:

Choose your preparer wisely

How well do you know the person and company preparing your taxes? Did they come personally recommended, or could they be earning cash on the side by selling your personal information. Do they have an established record and are they recommended by the Better Business Bureau? Don’t be afraid to ask for references.

Interview your preparer before you turn over sensitive information. Ask them exactly how they protect your privacy (do they have a strong privacy policy?). Are they meeting with you in a room full of client files, or do they take you to a neutral, data-free, conference room or office? Do they leave files out on their desk for the cleaning service to access at night, or do they lock your documents in a filing cabinet or behind a secure office door? Do they protect their computers with everything listed in the next section?

Asking professional tax preparers these questions sends them a message that you are watching. Identity thieves tend to stay away from people they know are actively monitoring for fraud. Remember, losing your identity inside of their accounting or bookkeeping business poses a tremendous legal liability to their livelihood. When it comes to the case with H&R Block it causes a huge loss of clients due to a damaged reputation.

John Sileo is an an award-winning author and keynote speaker on identity theft, internet privacy, fraud training & technology defense. John specializes in making security entertaining, so that it works. John is CEO of The Sileo Group, whose clients include the Pentagon, Visa, Homeland Security & Pfizer. John’s body of work includes appearances on 60 Minutes, Rachael Ray, Anderson Cooper & Fox Business. Contact him directly on 800.258.8076.

Top Tips to Stop Tax Time Identity Theft

If you receive my newsletter, you’ve already seen this article on identity theft during tax season, but I thought I would re-post it here.

Tax time is like Christmas for identity thieves. Our personal information sits out on desks (ours and our tax preparer’s), is mailed improperly, emailed incorrectly and stored unsafely. And to top it all off, Read more