- Identity theft has become a common problem in my tax office. Rare is the day without news of another data breach.
- Data thieves can open credit accounts in your name and more often now attempt to file a tax return in your name.
- The sooner you deal with identity theft the better. Criminals keep on victimizing you until you discover their behavior and take steps to stop their activity.
- You can take proactive steps to make it difficult for the identity thieves. These steps can prevent criminals from filing your tax return, opening accounts or stealing your money.
Identity theft went from a nuisance to a problem nearly everyone needs to address. It has become the number one question from clients this year as more people fall victim.
There was a time identity theft meant you did something wrong, exposing your personal data. A few simple precautions prevented problems.
Today it is rare for a day to go by without news of yet another data breach or ransomware attack. Through no fault of your own criminals can gain access to your personal data, account information (including login credentials) and tax returns.
There are no indications you are about to become a victim until the damage starts accumulating. Often times it is a call from your accountant saying your tax return was rejected with the IRS saying it was already filed or a bank declining a credit request.
A quick response is needed. The longer identity theft goes unaddressed the more damage that can be done.
There are steps you can take to recover from identity theft. Some of these steps are good to take even if you have not been victimized as they prevent (or at least make it harder) to use your identity to open credit accounts or file your tax return.
What is Identity Theft?
Before we discuss how to recover from identity theft, we need to review the several flavors identity theft comes in.
Personal Identity Theft
Personal identity theft involves someone you know. It could be a friend, family member, business partner or anyone with physical access to your data using the information without permission.
Aggravated Identity Theft
In aggravated identity theft your information is used to commit a felony. Criminals no longer just look to steal your money, they look to commit crimes in your name. The consequences can be devastating.
Criminal Identity Theft
This is what most people think of as identity theft. Criminal identity theft is the use of another person’s Social Security number, credit accounts or bank information without permission. This includes filing your tax return without permission.
Medical Identity Theft
Your medical records and personal information are used to file fraudulent insurance or Medicare claims and to acquire prescription drugs.
Recovering from Identity Theft
Contact Your Insurance
Most homeowners policies do not provide much identity theft protection. But some do so it is important to contact your insurance agent or carrier to verify how much help they can provide. Many homeowners policies provide coverage with an endorsement.
A few credit cards provide low-cost or even free identity theft protection. Since the time and cost involved in repairing the damage is large it is worth exploring resources available to you. Call all your credit cards to check what services they provide.
Services, such as Credit Karma, have monitoring services. Periodically check you records and sign up for free email alerts when someone tries to open an account in your name. Credit Karma might be the best deal going when it comes to monitoring your credit accounts. A basic Credit Karma account has no cost and provides a listing of your open credit accounts.
IRS IP PIN
One of the easiest and fastest ways criminals victimize you is by filing a tax return in your name before you file your return. You can rest assured the criminals will claim children that are not yours and maximize all the tax credits they can think of. Then the IRS wants the money back. . . from you.
If your identity has already been stolen you will need to file Form 14039 (Identity Theft Affidavit) with the IRS if your information was used to file a fraudulent return in your name. You also use From 14039 if a dependent child had a fraudulent tax return filed under her name.
It is vital you apply for an Identity Protection Personal Identity Number (IP PIN) from the IRS using Form 15227 or applying online even if you have not experienced identity theft. The IRS will issue a 6 digit number to you that must be included with your tax return.
Add a Fraud Alert to Your Credit File
Credit Karma can help with this. By adding a credit alert to your file banks will give added scrutiny to anyone trying to obtain credit in your name and Social Security number before approving a loan.
The fraud alert is free, stays on your file for a year and only needs to be reported to one credit bureau (that bureau will inform the other two credit bureaus).
File a Report with the Federal Trade Commission
File a report with the FTC if it is truly ID theft. A stolen credit card, for example, would not fall into this category. The FTC will supply the information to numerous police agencies around the U.S.
Inform Creditors and Banks of the ID Theft
It is important to also inform all your creditors and banks. This will flag your file so additional credit is not extended until the request is verified it came from you.
File a Police Report
Police are limited to their jurisdiction in their ability to arrest criminals. Still, you should file the report in case someone in the U.S. or even locally is using your identity.
Prepare all your documentation when file the report. The police will need this for their record and to assist in tracking criminal activity under your name.
Freeze Your Credit
A fraud alert is not enough. Freezing your credit prevents anyone from obtaining loans with your Social Security number, including you. If you need credit you will need to lift the freeze temporarily until you have been approved for the loan.
There is no cost to freeze your credit. However, you need to contact each credit bureau to place the freeze.
Tighten Passwords and Other Security
Simple passwords are so 1980s; reusing the same password across multiple websites is very 1990s. In the modern world where criminals are much more sophisticated and have powerful tools in their arsenal, it is vital to use complex and different passcodes on every online platform you have an account.
Shred documents before you throw them out. Keep your Social Security card in a safe place and do not carry it on you. Never place personal information on social media.
Reconcile Your Bank and Credit Card Statements Every Month
As an accountant I am amazed at the number of people who do not reconcile their bank accounts monthly. When we handle the reconcile in my office we discover bank errors. On average, a bank account reconciled in my office contains two errors per year. We also catch fraud very early in the game. It doesn’t always have to be ID theft either. Sometimes it is embezzlement of company or personal funds.
Suspicious charges are an indicator your identity or the account involved has been compromised. You have 60 days from the statement date to report the error. Since most bank errors are in favor of the bank (in our experience), it is up to you to verify all your money is where it belongs.
Check Your Credit Report For Unusual Accounts or Credit Requests
There is no cost to get a copy of your credit report. AnnualCreditReport.com is the official place to get your credit report at no cost from each credit bureau. There are many offers that say “free”, but those are not official sites and usually require you sign up for their plan that does have a fee.
Once upon a time I told clients they were generally safe if they used best practices when handling their finances. That is no longer the case.
Rarely does a day go by without another data breach reported. Your information has been hacked multiple times already unless you are the luckiest person alive.
I encourage all clients to get an IRS IP PIN. Monitoring your finances also includes a Credit Karma review. You must reconcile all banks accounts monthly; you must monitor your credit report activity; you must use complex passwords and different passwords on every platform you have an account.
Criminals are no longer interested in stealing small amounts of money. They want to peal off thousands, tens of thousands, each time they hook a victim. Do not be the low hanging fruit to victimize. The harder you make it the less likely you will be victimized.
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