Online filers of federal or state income tax increasingly are at risk of losing their refunds because of rampant and sophisticated identity thieves.

Several case scenarios find an individual filing a return but rather than finding the expected refund in their bank accounts or the mailbox, they received a letter from the IRS advising them their return had already been filed and their refund already paid!

Data breaches elsewhere give hackers an edge

Michael Cohn, editor-in-chief of AccountingToday.com, explained that hackers are using data stolen through breaches of other corporate and government systems to get access to tax information stored in IRS servers.

A recent example is the breach of the Office of Personnel Management’s (OPM) data that left the personal information of millions of federal employees – past and present – exposed. Cohn said in the April 14, 2016 article about breaches of IRS data over the past year that:

Taxpayer data was fraudulently accessed, not through a forcible compromise of the computer systems, but by hackers who correctly answered security questions that should have only been answerable by the actual individual.

Cohn wrote about reforms Congress mandated in 1998 for the IRS that have not been completed, a result, he wrote, of billions of dollars of cuts to the agency’s budget over the years.

Federal and state collaboration

The Security Summit, a group comprised of representatives of the IRS, departments of revenue from the fifty states, and tax software providers announced enhanced protections against breaches of IRS data.

The Summit added steps to the online filing process for 2016 with the goal to verify taxpayer identity before the return is processed. These include:

• taxpayers who received an IP PIN must use it. The six-digit number serves to prevent misuse of social security numbers, and will be sent every year before the tax season begins, and a new PIN will be sent each year;
• IP PIN notices dated January 4, 2016 erroneously refer to 2014 returns, but are valid for 2015;
• requirement to set a new password for those filers who are using the same online tax software as last year;
• some states ask for driver’s license numbers to verify identity; and
• in some cases, where filers have requested direct deposit of refunds, their refunds will be mailed by check instead.

For example, the Missouri Department of Revenue will make it optional for online filers to provide driver’s license numbers because the extra step provides more assurance that tax refunds will reach legitimate filer

Steps by taxpayers to improve their security

Individuals can take certain precautions with their personal computers and electronic devices to reduce their vulnerability. Experts recommend the following as some more easily implemented:

• Encrypt tax record documents. File encryption products are many and varied, therefore, “how-to” lessons such as the following example may be helpful: https://www.youtube.com/watch?v=4UIeSOeC5ss.
• Shred documents with personally identifying information (PII): name, address, birth dates and places, social security numbers, etc.
• Do not give out social security numbers except to trusted requesters, and do not carry the SS card on your person.
• Check the web address of the site visited to be sure it has the security lock and begins with https:// before entering any PII.
• If you are using any of the following, it is a good idea to change them right away and use stronger, individually unique passwords.

25 Most commonly stolen passwords in 2015:

If your identity is stolen…

Report the facts and circumstances to the appropriate authorities. Missouri Department of Revenue guidelines can be found here, reflecting similarities to those of other states, as well. In general, notify the following when you know or suspect that information affecting your tax status has been stolen:

• Department of Revenue of your state of residence
• Local police
• State Attorney General
• IRS
• Federal Trade Commission (FTC)
• Credit reporting bureaus: Equifax; Experian, and Trans Union.

2016 filing date for 2015 returns

Federal returns for the 2015 tax year are due on Monday, April 18, 2016.  Emancipation Day falls on Saturday, April 16, and since it is celebrated as a holiday in Washington, D.C. on Friday, April 15, the filing date for income tax returns is extended to the following Monday.