protecting taxpayersUpdated: March 7, 2016

Over the past two years, taxpayers across the country have been under assault from identity thieves aiming to infiltrate both state and federal systems and steal their refunds. Last year, TurboTax made headlines for all the wrong reasons when it temporarily halted state e-filing due to an increase in fraudulent filings. The IRS has dealt with headache after headache as cybercriminals have targeted multiple applications designed to make online filing easier and taken advantages of weaknesses in the security of its systems. Last year’s breach, originally announced in May 2015, was recently updated to indicate more than 700,000 social security numbers involved — up from the 100,000 initially reported. Tax identity theft is a hot topic and a high-priority problem for everyone in the tax world, and although there have already been plenty of issues during the current tax season, efforts have been made to strengthen security and keep taxpayers protected.

What have the IRS, state agencies and the tax industry been doing to combat tax identity theft and protect taxpayers? We decided to find out.

IRS

As the IRS indicates on its website, the nature of tax identity theft has changed significantly over the past decade — thieves rely less on record theft by digging through dumpsters or stealing mail, and instead focus on infiltrating online databases where customer information is stored in large, neatly packaged amounts. The IRS is constantly making changes every year to its standards and systems to protect taxpayers. The recent string of security breaches haven’t instilled much confidence in the taxpayer population as to how secure the agency can keep their private information, but efforts are being made.

One protection method that involves all three, spearheaded by the IRS, is the sharing of data between them to better help identify fraudulent returns. To ensure protection of the data shared, the National Institute of Standards and Technology (NIST) cybersecurity framework is being used. The data shared by the IRS, state agencies and tax industry will be analyzed, hopefully with the outcome of catching more identity theft in action. The IRS claims it has helped convict more than 2,000 identity thieves as well as open an additional 1,700 cases in the past few years, and the chances of increasing those numbers thanks to a working partnership between all elements of the tax universe are high.

The IRS itself has instituted an Identity Protection PIN, a six-digit code issued to those who were identified as victims of tax identity theft in the past that the IRS intended to help prevent victimization for a second year in a row. Unfortunately, this PIN application itself was attacked a few weeks ago, and prominent security experts instantly decried its vulnerability when it was introduced. It’s likely, given the nature of the new breach, that the Identity Protection PINs will not be used again — and, in fact, on March 7, 2016, the IRS announced it was temporarily suspending the PIN application.

State Tax Agencies

As the halting of state e-filing with TurboTax showed last year, it isn’t just federal tax returns that are at risk of being targeted for identity theft. State tax agencies all have their own methods of ensuring security, and one such measure being taken by many recently is to require taxpayers to provide their driver’s license or state-issued ID information as a method of verifying their identity. Other states have taken a more creative approach to verifying taxpayer identity, such as Ohio, which is mailing letters to taxpayers that direct them to an online quiz which they can take to verify their identity (or use to identify the return as suspicious). All state tax agencies provide detailed information on their official web pages to help taxpayers figure out what to do and who to contact if they believe they are victims of tax fraud. Find out what your state is doing by visiting its tax department website.

Tax Industry

Tax software companies have beefed up on security this year, with many changing their password requirements to enhance security, allowing two-factor authentication as well as offering new levels of protection that take into account the tax identity. In addition to more stringent password requirements, which should have forced all returning users to change their password when signing into their preferred online tax service, a series of three security questions must be created and answered for additional verification purposes. Users may also find themselves timing out when working on their returns more quickly than they remember, which is another important safeguard that prevents anyone from accessing your sensitive data if you happen to leave your account open unattended.

Some have also opted to provide specific products that focus on tax fraud prevention and identity restoration. For example, TurboTax’s optional add-on MAX benefits package now includes tax identity restoration, a service that connects customers with a tax specialist who will assist with identity restoration efforts in the event tax fraud is detected. The cost for the MAX package, which also includes audit defense and priority contact with TurboTax customer care is $39.99 and must be purchased before you file your return.

H&R Block also offers special identity theft protection with its Tax Identity Shield product, which provides a host of features like notification if a return is filed through H&R Block using your information, access to your Equifax credit score and report, restoration assistance and more. The cost for a year-long membership is just $30, with a seven-day money-back refund period.

Are these efforts enough to protect me?

Unfortunately, for every step the tax industry makes toward protecting taxpayers, the criminals are on their heels or sometimes a full step ahead of them (as evidenced by the IRS’ Identity Protection PIN issue). While it’s certainly imperative for the IRS, state agencies and the tax industry to do everything it can to create a safe, secure environment for citizens to file their tax forms and receive their rightfully owed refunds, identity theft is an issue that we face in every facet of life in today’s technological climate. You can find out how to protect yourself from identity theft, tax-related or otherwise, by following our identity theft protection blog. Also, visit our identity theft protection reviews to see how these services may be able to help you keep track of your credit reports and scores as well as monitor your personal information on the Internet black market and public records. Ultimately, the best protection is to stay vigilant and always be on the lookout for anything suspicious that might indicate your information has been compromised and used for illegal purposes, which is what an identity theft protection service will help you do.