Article written by FGMK Senior Tax Manager Michael Reese
The IRS and several state tax agencies recently published guidance during National Tax Security Awareness Week (November 27 through December 1) to alert individual and business taxpayers about data and identity protection during the holiday season (and beyond). Identity theft continues to be an area of concern for taxpayers, especially at this time of year with the increase in online and financial transactions. Business and individuals should take note of the following:
Identity theft is not just limited to tax returns. Cybercriminals may use stolen information to open new credit accounts, drain assets from existing financial accounts, as well as file fraudulent tax refund claims.
Use vigilance in shopping online. Avoid unprotected Wi-Fi hot spots as these may allow thieves to view transactions and sensitive data. Beware of making purchases from unfamiliar or unsecure sites (look for “https” and the “lock” symbol in the URL bar).
Protect access to your accounts. Use strong passwords. Experts recommend a minimum of 10 characters using a combination of letters, numbers and special characters. Consider using a phrase and avoid using the same password for all accounts.
Most stolen information is just given away by the unsuspecting. Watch out for phishing emails and threatening phone calls requesting sensitive information, or login or account confirmation for financial accounts. Avoid clicking on suspicious links or email attachments, especially if you are not familiar with the sender. Although there appears to be an increase in threatening phone calls from the IRS demanding immediate payment and threatening jail, the IRS does not call taxpayers with threats of lawsuits and/or arrests.
Beware of the W-2 scam. This scam is increasing as a result of changes made by the IRS to curb the e-filing of fraudulent tax returns. Variations include someone posing as a company executive or some other individual with authority in the organization, who emails a request for payroll information containing names and W-2s. Employers should consider internal steps to verify these types of requests should they occur, including a verbal confirmation before emailing W-2 data. Employers should also consider educating their payroll or HR departments about these scams and steps to take to avoid sending information to the wrong person.
Small businesses are increasingly being targeted. Identity theft is quickly expanding beyond individuals. Small business are being targeted by thieves not only for personal information, but also to file fraudulent business tax returns in the name of the business as well. By using employer identification numbers (EIN), thieves are using knowledge of tax filing practices to file fraudulent entity returns and Schedule K-1s, which are then used to file bogus refund claims. The EIN may also be used to open new lines of credit or obtain credit cards.
If you or your business is a victim of compromised information or identity, the IRS suggests the following steps:
- If possible, learn the extent of what information was compromised (emails, passwords, social security number) in order to take remedial action.
- Take advantage of any credit monitoring offered by any company that was a victim of a security breach.
- Place a freeze on credit accounts, or at minimum, place a fraud alert on credit accounts by contacting the three major credit bureaus. There may be a fee for a freeze, but an alert is free.
- Reset passwords on all of your accounts.
- Use two-factor authentication wherever it is offered. Two-factor authentication requires entry of a username and password, then a security code which is generally sent separately via text to a pre-registered mobile phone.
For the upcoming tax season, the IRS also suggests that taxpayers file their returns as early as possible, but not before they have all of the information necessary to file a complete and accurate return. Taxpayers who wish to learn more about the topic can visit the IRS website (National Tax Security Awareness Week 2017).
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