The Real Tax Nightmare May Still Be on the Way

Tax Day has come and gone. You pulled together the myriad facts and figures that determine what you owe, or the size of your refund. And now you’re waiting for your checks to arrive — or, if you are the nervous, slightly paranoid, type like me, you may be worried about an audit or some other correspondence indicating that you’ve got work to do.

While potentially daunting, it’s unlikely an audit or legal notice awaits you. There is, however, one nightmare that could still stand between you and your refund. It has nothing to do with cheating on your taxes or any other factor over which you exercise any control. And if you are one of the millions of unlucky winners of this particular lottery, you will receive your notification over the next few months.

It Will Come in the Mail (Or It Won’t)

The problem I’m referring to is identity-related tax fraud. You may find out you’re a victim when a deficiency notice arrives telling you that you have woefully understated your earnings, because— unbeknownst to you— your Social Security number was used by a non-resident worker who needed those precious nine digits to get a job, or a convicted felon who needed to pass a background check.

Or, you can find out when your refund never arrives.

In my book, Swiped: How to Protect Yourself in a World Full of Scammers, Phishers, and Identity Thieves, I go into some detail about the various ways the IRS could be doing a better job of protecting our identities from fraudulent activity, but at the end of the day avoiding identity-related tax fraud depends on only one rule of thumb, and good fortune.

The rule of thumb: file really, really early. In fact, file as early as you possibly can. Fraudsters going after refunds operate on the principle that they can beat you to the IRS. (If you didn’t file early this year, and you escaped taxpayer identity theft, don’t wait until the last minute next year. )

If you do discover you’re the victim of identity theft, you have some work to do.

For starters, notify the authorities, like the local police or the Federal Trade Commission, of the crime. Next, contact the IRS. File an IRS Form 14039 Identity Theft Affidavit. Print the form and mail or fax it according to the instructions. Be sure to continue to pay your taxes and file your tax return on time, even if you must do so by mailing in paper forms. And stay diligent by contacting the Identity Protection Specialized Unit of the IRS at 1-800-908-4490 if you aren’t getting a resolution to your case. Remember, a typical case of identity theft can take more than 180 days to resolve, so don’t count on that money anytime soon.

Dealing With Identity Theft

If you become the victim of any identity-related crime, there is help out there. You’ve heard the advertisements on the radio, read them online and seen them on TV. Services abound to help you navigate your post-fraud world.

Before you pull the trigger on one of those paid services, however, find out if you are already covered. Ask your insurance agent, financial services representative or the human resources department where you work if they provide a service to help you through an identity theft incident. You may be pleasantly surprised.

Many organizations (think banks, credit unions, insurance companies and employers) with which you have a relationship offer identity management and identity theft resolution services as a perk to their clients, customers, members and employees. So by all means survey the landscape and do the research to determine what you need, what you want, and how much you’re willing to invest — or even if you need to pay at all.

There are other things you should do continually to protect yourself from identity theft. I call them the three Ms.

Minimize Your Exposure. Be covetous of your personally identifiable information online, in person and on the phone. Be circumspect about what you share on social media and with whom you share it. Resist the urge to give up your Social Security number unless absolutely required to and give serious thought to freezing your credit at all three credit reporting agencies.
Monitor. Get your free annual credit reports at AnnualCreditReport.com. (You can also get your free credit scores, updated every 14 days, on Credit.com) Review your bank and credit card accounts on a daily basis; sign up for free transaction alerts from your bank, credit union or credit card company; and consider purchasing more sophisticated credit and identity monitoring programs.
Manage the damage. When the nightmare scenario happens, don’t whistle in the dark. Get to work, and never hesitate to call in the Calvary.