Tax related identity theft is most commonly accomplished by someone stealing and misusing your social security number in order to file a fraudulent tax return and obtain a refund.

Should I Be Worried?

My belief is yes individuals should definitely be worried.  The IRS received more than 34,000 tax identity theft cases in 2011 which was a 97% increase over 2010.  Apparently all that is needed to commit this crime is a social security number and a name.  At this point the IRS itself realizes that tax identity theft is on the rise and my belief is that thieves are acquiring the knowledge to commit this crime more quickly than the IRS is developing procedures to stop them.

How Would I Know If I was a Victim?

Most likely you would receive some type of notification from the IRS.  There a number of different notices that you might receive.  The notice may indicate that more than one tax return was filed in your name or you were paid by (and did not report income) from an employer you never worked for.  I recently had a client that received a letter stating his 2011 refund was being held until the IRS could review his return.  This notice was very alarming since my client was on extension and had not yet filed his return.

Can I Do Anything to Reduce My Risk?

There are some steps that can be taken such as not giving charities your social security number when you donate money.  They very rarely need it and if they do not need it why give it to them?  Do not ever respond to an IRS email that requests information.  The IRS does not currently request information via email; therefore any email that appears to be from the IRS is probably bogus.

I also believe there is serious risk in sending tax information in emails.  Very often I receive phone calls from clients indicating that they are refinancing a home and need their last 2 years tax returns.  They ask if I can email them to their banker.  I myself try not to send information with social security numbers through email.  I also ask clients not to scan and email sensitive information; they can either use my portal, fax the information or use the mail and/or fedex. I currently place sensitive information on a secure portal and have my clients and/or bankers download the information from this secure site.

I do still believe efiling is secure as tax programs encrypt such information before transmitting to the IRS.

Conclusion

I know identity theft is a scary and growing area.  It is also an area that changes very quickly as new ways to steal your identity are discovered all the time.  The best way to protect yourself is to be as careful as possible with any information that has your social security number listed.