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TheStreet Open House

4 Steps to Avoid Tax ID Fraud This Year

NEW YORK (TheStreet) -- Tax identity fraud figures seem to grow worse for taxpayers every year.

According to AllClearID.com, 1.2 million U.S. taxpayers reported tax-based identity theft cases to law enforcement authorities in 2012, and that rose to 1.6 million for just the first half of 2013.

According to a November report by the Treasury inspector general for tax administration, the IRS paid as much as $3.6 billion in fraudulent refunds to identity thieves in 2012, with more than 1.6 million taxpayers becoming victims of fraud in some form or another.

Whether they file their own returns or work with a tax professional, people need to be aware of potential tax scams and identity theft, says Rip Mason, chief executive at LegalShield, a legal services and ID theft protection firm.

"Tax scams are as old as taxes themselves," Mason says. "With the advent of so many new tax laws the last few years, including those included in the Affordable Care Act, scammers have been particularly active. Scammers prey on the uninformed and exploit people's natural fears of the IRS and our complex tax laws. Education is the only defense to stop scammers."

Tax ID fraud is particularly common as tax season rolls into its busy season. People are so busy gathering documents and collecting data that theyre not as careful as they normally would be with sensitive data such as Social Security, bank account or credit card numbers.

Mason and Legal Shield offer these tips to avoid being a victim this year:

Be careful with technology. While technology has made correspondence and interaction easier than ever, know that the IRS will never initiate contact by email or social media. Also note that phone scams increase during tax season. Identity thieves will call taxpayers impersonating IRS agents and ask for bank transfers or important credit information. Hang up.

Use a legitimate tax professional. Hiring a professional to help file your taxes is a great idea -- if, that is, that tax professional is legitimate. Be wary of anyone claiming to be legit but refusing to sign a return or include their ID number in filings or promising a huge return in exchange for a percentage.

Dont fall for any pitchmans hype. Despite what you might hear from late-night television commercials and shady advertisements, there is no free money to be had from the IRS.

Lastly, and most importantly?

Take special care of your financial data. Always stash your tax documents in a safe place and, if you store that data online, make sure it is password encrypted and fully secure.

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