How to handle the Equifax Breach this tax season?

Question

One of the most common forms of fraud is tax return fraud. Generally you don't find out until you go to file and someone has already been kind enough to file your tax return, AND take a payment for it.

Considering I have investments spread across a few banks, and 1099-INT forms tend to arrive in February (sometimes as late as march!) the first rule of beating tax fraud - File Early - is completely unavailable to me.

I've taken the precautions credit-wise, namely putting a credit alert on my credit report, signed up for credit monitoring, and monitor my own credit via Credit Karma. To date, I haven't noticed any threats. However, Equifax has told me I was a victim of the breach so I'm forced to stay vigilant.

Another solution that would work great, but is currently unavailable to me is the IP Pin system. This is only available in Florida, Georgia, and the District of Columbia.

The only solution I know that is available to me is Form 14039. However, I've been reading around and many sites seem to say that I should avoid prematurely filling out this form until I have confirmed there has been fraudulent filing of my taxes because it will generally trigger a manual audit.

I'm pretty lost on what to do here. I tried calling the IRS twice and they have no option via their normal number for people like me. One of the options even told me what I was looking for wasn't available via phone support and hung up.

Has anyone else experienced this and come up with a smart battle plan? Thank you!

Answer 1

My advice is to stop worrying about it. File your taxes normally as you have done in previous years.

If someone files a fraudulent return electronically in your name, you will find out when you try to e-file yourself, as the system will not let you e-file twice. At that time, you can contact the IRS, who will tell you to mail your return in along with Form 14039. The IRS knows that this happens, and it won't be a problem.

Most likely, no one will file a fraudulent return for you, but if they do, it just isn't a big deal.

Answer 2

One of the main things that protects you here is the size of the crowd affected.

That is, tens of millions of people were affected by the Equifax breach. Because of that, you're protected in a few ways.

First, since tens of millions of people were affected, you have a reduced risk of being a target in the first place. Unless there's something special about you that makes you a target, you won't be much more likely this year than you were in previous years - and even if there was something special about you, odds are that was making you a higher risk target those years also.

Second, because you were affected by a breach that has a very high level of publicity and will undoubtedly be causing thousands of other fraudulent tax returns to be filed, if you are directly affected, you will find it fairly easy to mitigate the damages, as everyone you talk to will have a good understanding of what's going on. The IRS will undoubtedly take steps to streamline the process for dealing with this kind of fraud, even if it's simply a matter of staffing the fraud department at a higher level.

Finally, tax fraud is an annoyance, but it's unlikely to cost you significantly. It will prevent you from filing online, but you won't lose your refund (if you're entitled to one), and it won't subject you to having to pay more if you're not. Tax fraud is fraud against the government, not directly against you, so you won't be out of pocket excepting perhaps a delay for your tax refund and the higher likelihood of an audit - though I can't see the IRS auditing every person who has a fraudulent return this year, if the Equifax breach does indeed cause a higher level of fraud in that area.

If you do have taxes that are sufficiently complex that an audit would be more than a minor annoyance, that's the one area I'd pay more attention to this year. Make sure you have all of your paperwork set to go. Don't claim anything you can't solidly back up. If you have someone prepare your taxes, double check their work, and make sure you know what kind of cost audit defense will incur, and be prepared for that.

Answer 3

This may not be an option for everyone, but I always make sure I owe the IRS come April, just the right amount below the threshold for having to pay penalties. The more false deductions and credits the fraudster has to claim, the higher the chance that the IRS will catch the return as fraudulent.

Answer 4

So far you've only talked about digital solutions, out there in the wild Internet, fighting with experts. Seems a lost cause.

Let me talk about the court's perspective. Ink signature on real paper trumps any electronic foo-foo. Filing is a legal process in which you force documents upon an entity and they are compelled to take them and treat them as bona-fide. For instance you don't submit a lawsuit for the court to accept if it amuses them; you file a lawsuit and the court is compelled to take it and act.

The final decider here will be the courts. And the IRS knows that, and they are very reasonable litigants, and will yield to what they know the court will rule. Been there done that, I would be happy if every litigant I ever faced was like the IRS.

It is the courts who see things as "paper is real, electronic foo-foo is no substitute". Courts do use the electronic stuff, but as labor-savers for matters which are not in dispute. If something is the crux of a dispute, paper wins hands down in the eyes of the court. Courts also understand

• the mechanics of filing...
• the basic mechanism that you cannot arbitrarily impose terms without consent (and by the nature of their business, IRS and Equifax cannot extract consent)...
• that where a problem is systemic (like the Equifax fraud), the burden rests on the party who is able to combat it, not the party who has no chance to do so...
• with problems shared by every citizen against a large entity, generally favoring the citizen... and
• moreso when that is the government itself, as opposed to a private company (whose owners after all are citizens with rights)

That does not absolve you of a basic common-sense duty to not be careless with your personal information. But Equifax collected your data against your will, so that is the very definition of "not on you".

If they e-"file" in lieu of filing with someone who is not you and is not authorized by you, not only did they violate Federal law thusly, they also discussed your return with someone you did not authorize, violating it again. It is probably illegal for the IRS to give public money to someone not worthy, and there would be no way to deny your refund without calling it some sort of arbitrary tax or service fee, which Congress has not authorized.

Answer 5

Do you really need those 1099-INT forms to file your taxes?

Can't you just add up how much interest you got from your statements?

I know this is more annoying and not the kind of answer you want to hear, but if you would otherwise really want to file early, I don't see what the 1099-INT forms would do for you other than save maybe half an hour to an hour's worth of work. They should only be summarizing information you already have, not presenting any new information you didn't already have.

And you can even double-check this to make sure: you can just do the exact same calculations for last year and see if you get the same numbers as you were given on your 1099-INTs. If you were, and it's the same kinds of accounts you're dealing with, then there's no reason to believe you wouldn't get the same numbers this year.

Note that this is only talking about bank interest (1099-INT) though. For stock trading (1099-DIV) and other forms, you might not have enough information handy to compute your capital gains, since capital gains tax depends on which shares, bought at which times, were sold at which times, which is information you are likely to be unaware of. (You can have two shares of the exact same stock taxed differently when sold at the same time, because they were bought at different times.) Although, if you don't, perhaps you can get that information from your broker earlier. I'm not recalling right now whether these bits are typically included in statements or not. But in any case, it might be a lot more painful than computing bank interest if you're a frequent trader.