What is Tax Identity Theft?

July 07, 2016 : Allie Freeland

With so many financial record breaches, identity theft has become a well-known issue…unfortunately.

Generally, identity theft encompasses some piece of personal information being stolen and used by a criminal. It could be as simple as taking stolen credit card information and making fraudulent online charges. It could be medical care fraud, when a criminal uses your name, address and Social Security number to submit fake Medicare claims.

Javelin Strategy and Research found that there were 13.1 million identity theft victims in 2015, with the total value of stolen assets at $15 billion! However, the FBI says that the number of victims and losses is likely much higher than publicly reported statistics.

So we know that identity theft is a widespread issue, and there are many different forms of identity theft. One of those forms is tax identity theft.

Tax Identity Theft

With tax identity theft, a criminal uses your name, birth date and social security number to file a fraudulent tax return. Besides those three pieces of information, all of the details of the return are typically false – engineered to calculate the largest tax refund possible. We’ve covered this before.

The IRS doesn’t match up the information sent from your employer with your tax return until several months after the refund has been issued. According to Fraud Magazine writer Robert Holtfreter, ” By the time the IRS tells the victim that it has received another tax form in his or her name, the thief has cashed the refund check and is long gone with the money.”

The problem has become so widespread that it topped the IRS’s list of “Dirty Dozen” tax scams for tax season 2016. Tax identity theft was the most common type of identity theft reported to the FTC in 2014. In 2013, the IRS paid out $5.8 billion in fraudulent refunds, but prevented about $24.2 billion refund dollars from being distributed to thieves.

How does this happen?

Thieves can access your personal information in a variety of ways. It could be as simple as getting medical care and having the records breached, or going to college and having someone stealing your financial aid records. Remember, all a potential thief needs is your name, birth date, and Social Security number.

Most victims find out their information has been hacked when the IRS sends a letter alerting them that another return was already filed in their name. The average time it takes to resolve one of these cases is 278 days, according to the U.S. Department of Treasury.

How to help better protect yourself

There are a number of important steps to take year round to help better protect yourself. We’ve covered the basics like checking your credit report, shopping on secure websites, and identifying phishing schemes.

But when it comes to better protecting yourself against tax identity theft, H&R Block has a product for our clients. It’s called Tax Identity Shield®.  It has a variety of features:

  1. Proactive Defense – Assistance obtaining additional identity theft protections offered by the IRS (including an Identity Protection PIN and Identity Theft indicator) to help better protect against thieves filing a fraudulent tax return with your information (subject to eligibility) 1.
  2. Detection & Notification – A tax eFile notification if your information is detected on a tax return filed through H&R Block.
  3. Risk Alert & Information – A tax identity theft risk assessment to determine if your information may be at risk and steps to help reduce your risk.2
  4. Education – Information on the latest scams and threats, as well as what you can do to reduce the risk of becoming a victim.
  5. Restoration Assistance – Access to tax identity restoration assistance2 to help restore your tax identity if necessary.
  6. Equifax® Credit Score & Credit Report3 – This credit score is based on an Equifax Credit Score model and third parties are likely to use a different score to assess your “creditworthiness”.

Tax Identity Shield® helps better protect next year’s tax return. If you’ve already been notified that a fraudulent tax return was filed in your name, talk with one of our tax professionals about Tax Identity Victim Restoration Assistance. This service will help you file the correct form with the IRS, and give you a checklist so you know the steps to take to make the necessary police reports, notify the credit bureaus as well as the FTC and Social Security Administration, contact your financial institutions and more.

1: Qualifying individuals only.  See www.irs.gov for qualifications.

2: Additional terms and limitations apply. Please refer to your Tax Identity Shield® Terms, Conditions and Limitations document for a complete description.

3: The credit score provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.

Equifax is a registered trademark of Equifax, Inc. Other product and company names mentioned herein are property of their respective owners.

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Allie Freeland

Allie Freeland

Contributing Editor, H&R Block

Allie is the Contributing Editor of the H&R Block blog, Block Talk. She has been a practicing grammar geek since 2007.