Keeping your driver's license number safe could help prevent tax fraud

Those driver’s licenses (DL) in our wallets or purses we think of only as a necessary tool to legally pilot our vehicles from one place to another is steadily advancing in rank to be equal with Social Security Numbers as must-protected pieces of personal information. Several states are already requiring DL numbers for taxpayers to electronically file state tax returns as a way of combating tax identity fraud. Can the federal government be far behind?

According to the March 15, 2017 edition of AICPA Insights Alabama, New York, and Ohio are the three states requiring DL numbers for e-filing. California, Kansas, Louisiana, New Jersey, Pennsylvania, Virginia and Wisconsin are requesting, but not requiring, the number’s use.

However, it can be a short regulatory distance from requesting to making it mandatory. What one state does, others tend to copy as a self-protection measure. Even if in a particular case or cases where a DL number wouldn’t have stopped identity theft-related tax fraud, regulators typically don’t want victimized citizens saying to them – or worse, saying to the news media – If we had what that other state has this wouldn’t have happened to me!

Identity thieves steal money from the government and force the law-abiding taxpayer into the always-uncomfortable position of having to prove they aren’t the criminals. Furthermore, it delays or disrupts the refunds they’re legitimately owed from the government. This means that individuals and tax preparers are increasingly cautioned to treat DL numbers with the same security concerns assigned to Social Security Numbers. This leads to yet another circular situation with respect to identify theft and protection: the more valuable DL numbers become to criminals, the more the numbers must be protected, and the more the numbers are protected, the more valuable they become to criminals.

The IRS doesn’t – yet – require DL numbers for e-filing, but it won’t be a surprise if it’s in our future as another attempt to barricade taxpayers from identity theft lawbreakers. The IRS has made headway in the last several years dealing with identity tax fraud, which occurs when someone who isn’t the taxpayer gets a refund based on a phony return submitted with stolen identification. Some of this progress is relatable to internal IRS actions, others to cooperation between the IRS, state governments, tax preparers and related organizations.

CBS News reported that victims of tax identity theft had dropped to 377,000 in 2016; that’s down from 766,000 in 2014. The report said the IRS last year stopped nearly one million fraudulent forms that would have amounted to about $6.6 billion in stolen cash from the U.S. Treasury.

An IRS website question-and-answer sheet on 2017 security safeguards directed toward combating identity theft in part discusses DL numbers. One example: 

  • Why am I being asked for my driver’s license number?

You do not need a driver’s license number to file your federal tax return. But, in an effort to better protect you from identity thieves, some states will be trying new approaches. Some states may ask for additional identification information, such as your driver’s license number, when you are preparing your state tax return. This will be another layer of protection because identity thieves may already have your name and Social Security number, but perhaps not your driver’s license number. States requesting this information have the ability to match driver’s license information and other identifying records to help confirm your identity.

The ball having begun to roll with respect to DL numbers being treated as personal and protected information, it’s not going to go into reverse. Therefore, the best course of action is to begin now treating that number with the same level of care as you do your Social Security number.

You’ll have to eventually, in all probability. It’s another – and unfortunate – sign of our times.

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Tagged Identity Theft, Security, Tax Fraud