April 15th is rapidly approaching, and the risks of tax refund identity theft have grown larger than ever for consumers. Filing fraudulent tax returns based on stolen identities is accelerating and, as many financially successful individuals and families await their refunds, a growing percentage may find that identity thieves already have collected a substantial sum on their accounts.
Last year alone, more than 236,000 tax returns were deemed fraudulent because of identity theft, and nearly $1.2 billion in refunds from those returns were blocked. We’re only a few weeks into the 2014 tax filing season, and already there are reports of at least one aggressive scam with identity thieves purporting to be the IRS asking for tax payments and other sensitive information over the phone. Victims of tax refund identity fraud must contend with the current IRS backlog of nearly 650,000 unsolved identity theft cases. Six months to a year could pass for a case to reach resolution.
Financially successful individuals represent high-value targets due to their wealth and also highly visible targets due to the prominent positions they often hold in their community. As identity thieves become increasingly skilled, wealth advisors can help their clients be alert to the warning signs of tax refund identity fraud and mindful of protecting their privacy. To help their clients avoid possible significant financial loss, advisors should recommend several actions to manage sensitive personal information and guard against identity fraud during tax season.
Beware the warning signs of fraud. You should take action immediately if your clients receive IRS notices that indicate more than one tax return was filed or that wages were earned from an unknown employer. More generally, all individuals should check their credit report annually, as this caution will help ensure that any potential discrepancies are identified early.
Protect Sensitive Information
Unless they know who is receiving it, clients shouldn’t share personal information over the phone, via mail or over the Internet. Perhaps most importantly, they shouldn’t divulge Social Security numbers or other highly sensitive personal information of that nature unless absolutely necessary. When confronted with a request, they should ask if an alternate proof of identity would be acceptable.
Recommend that your clients engage with a personal information management firm. These firms offer monitoring services that can be extremely helpful during times of heightened vulnerability, such as after a home or auto break-in, during international travel or during a residential move. They also help victims of identity theft recover after a breach is discovered. High-net-worth specialty insurers often provide access to the services of these firms on a complimentary basis, so wealth advisors should ask if their clients have a policy with such a company.
Purchase Identity Fraud Expense Insurance Coverage
Despite all of the protective, preemptive measures a client takes, skilled identity thieves may still succeed. Therefore, families should seek homeowner insurance policies that include coverage for identity fraud expenses. While this coverage won’t reimburse the family for money that’s been stolen, it will help with the cost of legal fees, lost income from time taken off to meet with officials and other expenses related to recovering from the fraud incident. HNW-market insurance companies may offer up to $100,000 in coverage for these expenses.
Financially successful individuals and families face significant risks from identity thieves, hackers and other digital criminals—risks that increase during tax season. By recommending such straightforward measures as general vigilance, basic protection of sensitive personal information, proactive privacy risk management and adequate identity fraud expense insurance coverage, advisors can help ensure that their HNW clients are as protected as they can be against the risks of tax refund identity fraud.
Mary Boyd, Division President of ACE Private Risk Services, has more than 20 years of experience in the insurance industry, with a special focus on meeting the personal insurance needs of high net worth individuals and families.