United States: Still Worried About The Equifax Breach? So Are 145 Million Others

This upcoming tax season may see an increased filing of fake tax returns utilizing a victim's name and Social Security number to redirect refunds to the fraudsters account. To counter, the IRS has implemented proactive steps to attempt to minimize taxpayer identity theft.

Unfortunately, data breaches and the theft and disclosure of personal information are becoming an almost daily occurrence. As initially reported, the massive Equifax data breach has raised major concerns for approximately 143 million Americans with a credit record of any kind. However, as reported this month, 2.5 million more people may have been exposed. Equifax maintains comprehensive personal information on the credit histories of millions of people, along with Social Security numbers and other sensitive information that is extremely valuable to identity thieves. The Equifax breach has ignited an epic sense of alarm resulting in the need for individuals to proactively safeguard their personal information.

According to former CEO Richard Smith, who announced his retirement in September, "human error and technology failures" are the root causes of the breach. He was grilled on Tuesday, October 3, by members of the House Digital Commerce and Consumer Protection Subcommittee, who used words such as "shocking," "unprecedented," "stupid" and "deserving of shame" as a visibly uncomfortable Smith provided little explanation for the recent events. Lawmakers indicated there was little they could do in terms of punishment or fines as long as Equifax complied with current law, and several representatives are expected to introduce legislation further penalizing credit reporting agencies for releasing consumer's personal data. At this time, joining a class action suit seems to be the only recourse.

A troubling aspect of this breach is the length of time that elapsed between occurrence and disclosure, not to mention the appearance of impropriety as it has been reported that certain key executives sold shares before disclosure of the hack to the public. This gave the hackers even more time to make use of the stolen information.

In terms of numbers, Equifax has warned that attackers actually accessed (as opposed to the 143 million exposures) credit card numbers of approximately 209,000 United States customers and additional documents containing personally identifiable information for approximately 182,000 other Americans, as well as individuals in the United Kingdom and Canada.

What You Should Do

In light of the magnitude of the breach, there are immediate actions you can take to protect yourself. As an initial step, if not already accessed, you may refer to the Equifax website to determine if your personal data may have been compromised. It may be prudent to forgo this step and simply assume, since the breach impacted millions, you are among them. If impacted, below are additional steps, in order of strength and effectiveness, to minimize your exposure:

  • Consider placing a security freeze on your credit at each credit rating agency. This approach is designed to provide the upmost protection. Instead of just detecting fraud, it may actually prevent it. It locks your credit scores allowing no one to access your information. During the freeze, your identity cannot be stolen as any use of your personal information will go awry. As a result, unless you unlock your credit service, no one (even you) will be able to access your personal information upon securing a loan or applying for a credit card. You may freeze your credit on the TransUnion website or 1.800.685.1111; the Experian website or 1.888.397.3742; and the Equifax website or 1.800.349.9960. 
  • If not already in place, consider initiating two-factor authentication for all applicable websites and applications, especially those containing your personal information or requiring personal information to log in. This process may require your fingerprint to log in on your smartphone.
  • Monitor bank and credit card accounts often. For now and perhaps as a common practice, we recommend weekly, if not daily, monitoring of your bank and credit card accounts. Many companies offer a service where they notify you (via text or email) if a bank withdraw or credit card charge is over a certain limit. Additionally, they can issue you daily reports of your financial activity. Regarding your credit card, take note of small, but suspicious, charges. Criminals may charge small amounts to see if account holders notice and, if not, will continue using the card. Report any suspicious activity immediately, or you may be liable for fraudulent charges above certain limits. Also, request free copies of your credit report, at least annually, if not more often, and immediately dispute any incorrect activity.
  • Enroll for no charge in Equifax's TrustedID credit monitoring service, which includes credit monitoring at all three major credit bureaus and access to copies of Equifax credit reports. This service notifies you when someone is attempting to commit identity fraud in your name, such as applying for a new credit card or loan. Although a valiant attempt at protection, this is the weakest step you can take, since by the time you are notified fraud may have already occurred, with ensuing damage to your credit file which can take weeks, if not months, to undo.

While the steps above may limit the threat of identity theft, be very wary of any emails, telephone calls or text messages related to the Equifax breach, as there have been reports of phishing attacks by fraudsters offering protection services.

Tax Season Implications

With more and more personal information at risk from Equifax and other breaches, the IRS' defenses will continue to be tested. This upcoming tax season may see an increased filing of fake tax returns utilizing a victim's name and Social Security number to redirect refunds to the fraudsters account. To counter, the IRS has implemented proactive steps to attempt to minimize taxpayer identity theft.

For instance, until this year, employers had until the end of February to file W-2 forms by paper or until March 31 to submit the forms electronically to the Social Security Administration. As a result, the IRS could issue refunds to taxpayers before receiving W-2 forms. This year, in accordance with the Protecting Americans from Tax Hikes (PATH) Act, employers must file W-2 forms by January 31. According to the IRS, the earlier deadline should make it easier for the IRS to verify the legitimacy of tax returns, properly match and issue refunds to taxpayers eligible to receive them, as the January 31 date is also the date Forms W-2 are due to employees.

As an additional safeguard, last year the IRS began placing a 16-digit verification code on approximately 2 million Forms W-2. The IRS will expand the program to 50 million Forms W-2 this year and eventually to all of them. The purpose of this additional measure is to verify the W-2 data submitted by taxpayers on their electronically filed tax returns. Failure to enter the code will not result in the rejection of an individual's tax return. However, the IRS uses the verification code to help verify the information on the Form W-2.

Unfortunately, this system will not be foolproof, as the IRS is scheduled to accept returns as early as January 23 next year. Also, many taxpayers, such as self-employed individuals and members or partners in pass-through entities, are not issued a W-2. We are strongly encouraging our clients to file their tax returns early since fraudsters will continue to attempt to utilize stolen Social Security numbers to file tax returns in the names of others in an attempt to have refunds re-directed to their accounts. Filing early may decrease the odds of tax identity theft as the perpetrators may not have enough time to gather the information required to file a convincing fraudulent tax return.

For more information regarding tax-related identity theft, please refer to our previous Alert, where we discuss other steps you can take to help prevent various forms of identity theft.

Do Your Kids Need Protection?

Do they file tax returns? Do they have investment accounts? Certainly they have Social Security numbers. Therefore, although children may not have as much exposure as adults, they likely need some level of protection. Fortunately, since often they do not have active credit reports, their Social Security numbers are unlikely to have been compromised through the Equifax breach. In fact, the former CEO of Equifax, in his testimony before Congress, indicated there are no known minor victims of the breach. However, identity thieves can begin building a credit file for minors by making credit inquiries when a child is very young.

The three credit reporting agencies will create a credit file at the parents' request (sometimes charging a small fee) even if there is no history, and, once created, the parent can immediately freeze the file, as discussed above. Note, however, that it could be a difficult process and may require mail communications (since no online credit file exists for the child). Short of this measure, children should exercise caution with email links, suspicious calls, etc. Finally, be careful when asked to provide the child's Social Security number. Schools and medical insurance companies may say they require it, but ask if that information is completely necessary, and how it is safeguarded.

TAG's Perspective

If only the frequent reports of computers and emails being hacked were fake news. The Equifax breach takes hacking to an unprecedented level, comparable to a category 5 hurricane in the cyberworld. The lasting impact could affect consumers for years to come and is likely to result in the increased filing of fraudulent tax returns. When a credit agency that collects and maintains private data cannot secure your personal data, who can? Although the IRS (and others, including businesses and government agencies) are taking steps to protect taxpayers, it is becoming more apparent that individuals must be proactive and monitor their financial data more closely now than ever.

For Further Information

If you would like more information about this topic or your own unique situation, please contact Michael R. Bartosik, CPA, CFP; Steven M. Packer, CPA; or any of the practitioners in the Tax Accounting Group. For information about other pertinent tax topics, please visit our publications page.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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