Big Tax Data: The Dark Side

Recent headlines from the Internal Revenue Service have highlighted the fallibility of its vast tax processing systems. This comes against the backdrop of an ongoing battle to protect taxpayers from identify theft. So what can you do to protect yourself from big-tax-data-gone-bad?


The Big-Tax-Data Beast

Any victim of identity theft has a story to tell of time-consuming frustration. Tax-related identity theft has typically involved criminals stealing individual personal information and using it to file a fraudulent return requesting a large refund. But the crime is morphing into something more sophisticated, with criminals accessing data in bulk from the records of businesses. With millions of Americans already victimized and billions of dollars at stake, the issue is taking center stage in any discussion of financial security.


New Prevention Measures

The IRS, state revenue agencies, tax software providers, and tax professionals are working together through a new partnership called the Security Summit Initiative, and they have adopted measures for the 2016 filing season to counterattack the new threats. While many of these efforts will be invisible, taxpayers may expect the following changes:


  • New password protections
  • Driver’s license numbers required by some states
  • Short quizzes to confirm identity by some states
  • Better models and filters built into tax software

New Solutions

Efforts to help those already victimized are also being ramped up by taxing agencies:


  • The IRS has centralized its aid to victims with the new Identity Theft Victim Assistance unit. However, a typical case can still take 120 days to resolve.
  • IP PIN – a unique 6-digit number is assigned to victims by the IRS and must be included on returns. Some states have begun using their own security PINS this year.
  • The new Consolidated Appropriations Act, signed into law by President Obama in December, allocates an additional $290 million to address cybersecurity, tax-related identity theft, and improve the IRS’s customer service.

And just this month President Obama released a 2017 budget proposal that includes stronger penalties for tax-related identity theft and a 4.7 percent increase in the IRS’s budget.


Warning Signs

Be aware of warning signs that your identity may have been compromised. Some first hints include:


  • Your return cannot be filed because another return was already filed using your Social Security number
  • You are being told you owe additional tax for a year you did not file a return
  • IRS records show you received wages from a source you do not recognize

Our Role

DMLO works closely with clients to prevent problems and to minimize headaches for those unfortunate enough to be targeted. We encourage you to share with us any suspicions of fraud and provide us with all communications from taxing agencies so that we can advise and guide you in taking prudent steps to protect yourself going forward. We can help with a comprehensive plan — file the proper forms with tax agencies, protect credit, and communicate with other parties, including banks and those businesses reporting a data breach. With prompt and careful attention, we can help restore your financial security.

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