Nine months. The amount of time it takes from a baby’s conception to birth. That’s also the amount of time the Wall Street Journal “Total Return” blog reported that it takes for a taxpayer to put the pieces back together of a life disrupted by tax identity theft. The Internal Revenue Service (IRS), Federal Trade Commission (FTC), Federal Bureau of Investigation (FBI), are sharing the ABCs of protecting yourself against tax identity theft. The government is trying to stomp out tax identity theft on the front end and punish on the back end those convicted of fraudulently obtaining and using taxpayer information to criminally make off with a refund that doesn’t belong to them. Every taxpayer is vulnerable. But some less so. They file their tax returns early; shred financial documents rather than throw them away; have the latest anti-intrusion software on their computers; never, ever, click on an e-mail saying it’s from the IRS; and other tactics to protect themselves.
Tax preparers have a role to play in this process, too. Tax preparers are theft targets as well, for much the same reason notorious bank robber Willie Sutton is reputed to have said, when asked why he robbed banks, “Because that’s where the money is.” Tax preparers are where the tax returns are. That’s a reason the IRS earlier this month issued a paper entitled, “Tax Return Preparers: Data Thefts and Protecting Client Tax Information.”
One example of the need for such vigilance is found in a September 1, 2015 news release from the U.S. Justice Department. Two Minnesota tax preparers were found guilty of conspiracy to defraud the United States; tax crimes; and aggravated identity theft.
“Evidence introduced at trial established that in late 2006, defendants Kosh, Sangaray and Khofi set up a Primetime storefront in Brooklyn Center, where they prepared false tax returns that reported false dependents using stolen identities, fake business income and losses, inflated deductions, and inflated credits and false filing status, all to inflate customers’ tax refunds,” the news release said. In March 2015, a Florida tax preparer named Julio Lugo was sentenced to five years and 10 months in jail. The FBI said, “Lugo used the EFIN for Light House Refund to file 48 fraudulent tax returns using stolen identities, and obtained tax refunds to which he was not entitled.”
The IRS paper lists these entities are having responsibility for taxpayer information protection: “Financial institutions as defined by FTC include professional tax preparers, data processors, their affiliates and service providers who are significantly engaged in providing financial products or services.” These are the six actions tax preparers listed above must take for your protection:
- “Take responsibility or assign an individual or individuals to be responsible for safeguards;
- “Assess the risks to taxpayer information in your office, including your operations, physical environment, computer systems and employees, if applicable.
- “Make a list of all the locations where you keep taxpayer information (computers, filing cabinets, bags and boxes taxpayers may bring you);
- “Write a plan of how you will safeguard taxpayer information. Put appropriate safeguards in place;
- “Use only service providers who have policies in place to also maintain an adequate level of information protection defined by the Safeguards Rule; and
- “Monitor, evaluate and adjust your security program as your business or circumstances change.”
What that also means is that these are the subjects of questions customers can ask of their tax preparers to gauge their ability to protect information. More details are available in IRS Publication 4557. No defense system is perfect. There are, unfortunately, liars, cheaters, and thieves in society spending all day, every day, trying to figure out how to get at money that doesn’t belong to them. Tax identity theft is just a 21st century incarnation of the age-old problem of crime adapting to its surroundings.
The more questions you ask, and the more you know, the better protected you’ll be.
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