How to Spot and Prevent Tax Identity Theft

April 4, 2011 -- Tax identity theft has become a major problem, without most of us even having heard of it. In congressional hearings, senators even took the IRS itself to task for a lethargic response to the problem. So here's Tax Identity Theft 101 to get you up to speed.

Steps to Prevent Tax Identity Theft

Don't respond to emails with IRS in the "from" field. There's a current scam in which fraudsters pose as the Internal Revenue Service and email people, claiming your electronic tax return did not go through. They ask you to refile it and direct you to a fraudulent site where they harvest your personal financial information. Know this: The IRS will never communicate with you through email. Any email claiming to be from the IRS is a scam.

Check out your tax preparer. One way identity thieves tap into your tax information is by providing fake tax preparation services. These services may be advertised on Internet listing services or telephone poles, and the hook is that they are free. Don't fall for it. The IRS suggests taking these steps to make sure a tax preparer is legitimate and qualified:

-- A paid preparer must sign the return as required by law.

-- Avoid preparers who claim they can obtain larger refunds than other preparers.

-- Most reputable preparers will ask to see your receipts.

-- Check the preparer's reputation with the Better Business Bureau, the state's board of accountancy for CPAs, the state's bar association for attorneys or the IRS Office of Professional Responsibility for enrolled agents.

-- Find out if the preparer is affiliated with a professional organization that requires continuing education and holds members accountable to a code of ethics.

-- If you do need free tax preparation, the IRS can often help taxpayers prepare their own returns without the assistance of a paid preparer. Check out these helpful links:

-e-file for Individual Taxpayers

-Free File

-Free Tax Return Preparation For You by Volunteers

Secure your return. Whether you hire a professional or do your taxes yourself, it is one of the few times that all of your sensitive financial information is in one place where a thief can swipe it. -- So, if preparing and filing your taxes on a computer, make sure you have a secure internet connection with complex passwords, up-to-date antivirus/anti spyware software that automatically updates and a good firewall between your computer and the Internet. -- If you are hiring a preparer to do your taxes, ask the preparer what systems he or she has in place to keep your physical paperwork and your electronic data safe. --Rather than mailing your return from a blue postal box or putting it in your own mailbox as outgoing mail, walk it into a post office and hand deliver it to a postal clerk. Send it certified while you're at it.

Telltale signs that you are already a victim of tax identity theft:

You receive an IRS notice saying you made more money than you claimed. The notice may list employers you have never heard of. Chances are somebody used your Social Security number when they got a job.

You try to file your tax return electronically and it is rejected. The rejection notice may state that you cannot file more than once. Somebody else has possibly filed a return using your name and Social Security number.

You claim your children as dependents, as you should, and your return is rejected. This could be because somebody else has stolen your children's Social Security numbers and fraudulently claimed your children as dependents to inflate their own refund.

Where to turn for help if you believe you are a victim of tax identity theft:

The Internal Revenue Service now has a designated group that responds to citizens' concerns about Tax ID theft. You can contact the IRS Identity Protection Specialized Unit at (800) 908-4490

If the IRS itself is not responsive to your tax identity theft complaint, you may be able to get assistance from the Taxpayer Advocate Service. Call 1-877-777-4778 to see if you are eligible.

The Federal Trade Commission is the nation's consumer watchdog and the designated repository of all identity theft complaints. Therefore, you should also file a complaint with the FTC.