Home > Identity Theft > Should You Have a Disposable PIN Code to Protect Your Tax Refund?

Comments 0 Comments

The short answer to the above question is that in a perfect world, yes, you should not just have a PIN code (most tax returns require one)—you should be issued a new one every year.

The IRS estimated that it paid $239 million in “suspect” tax refunds in 2016. The good news: During the first nine months of 2016, the agency was able to stop 787,000 fraudulent returns totaling more than $4 billion. The bad news: the IRS has to implement a new tax law with a slashed budget, and more people than ever are exposed to the threat of tax fraud.

The reason for this increased threat is the Equifax data breach, which compromised the most sensitive information of more than 145.5 million people—a data security fail of epic proportions. The Social Security numbers of at least 143 million taxpayers were leaked along with everything else a criminal would need to file a fraudulent tax return.

In case you’re not crystal clear on this: that’s a problem, especially if you work at the budget-challenged Internal Revenue Service. That said, IRS officials have been downplaying the situation.

“We actually think that it won’t make any significantly or noticeable difference,” IRS Commissioner John Koskinen said after the Equifax breach. “Our estimate is a significant percent of those taxpayers already had their information in the hands of criminals.”

The official IRS estimate of the number of Americans whose personally identifiable information has been stolen is 100 million. That means, according to the agency’s own logic the Equifax breach only really exposed 40 million or so taxpayers. The rest were already compromised.

Let’s say for the time being that as screwy as those estimates seem, they are more or less correct. 152,235,000 tax returns were filed in 2017. So, if you’re an exceedingly lucky person, you can relax. Because about 10 million taxpayers are perfectly safe.

Feel Better?

While it may seem like common sense given the pandemic state of information insecurity that every taxpayer would be issued an annual (i.e., one-use) PIN code to protect against the pilfering of their tax refund, that’s not presently an option for most taxpayers.

If you’re wondering why that’s the case, remember that we’re dealing with Washington, where, on a good day, government agencies are about as fleet of foot as a three-legged turtle.

There is a PIN option available to nearly all taxpayers. It is called the self-select PIN, which is designed to be used when signing an electronic Form 1040 and Form 4868. This PIN can be any five numbers (except all zeros) that the taxpayer chooses, and it serves as an electronic signature. Unless you’re a minor with income, you’re eligible to use the self-select PIN, and to get one you only need to provide your date of birth and your adjusted gross income from the prior year.

One of the main issues I have with the self-select PIN is that it stays with the taxpayer—it’s re-used. Re-use creates the potential for tax fraud, because if your self-select PIN is stolen or compromised, a criminal can use it to file a return and steal your refund. Wondering what the chances are of something like that happening? Think back to 2016 when news broke about thieves successfully accessing more than 600,000 taxpayer records (including PINs) from January 2015 through May 2016 by gaming the IRS’s Get Transcript service.

There Is a Solution

The Identity Protection PIN, or IP PIN (as distinguished from the self-select PIN), is a 6-digit, anti-fraud identifier that the IRS creates for victims of identity-related fraud. It is a one-time PIN, with a new number being issued every December.

If you have been a victim of identity theft, you can file an identity theft affidavit with the IRS (using Form 14039), and the IRS will let you know if you qualify. They do this by sending a CP01A notice, which includes the IP PIN. Residents of Florida, Georgia and the District of Columbia are able to get an IP PIN, whether or not they are a victim of ID theft, as part of an IRS pilot program to determine demand among taxpayers.

Given the fact that a majority of taxpayers are in a position to be robbed of their tax refunds, it makes sense that the more secure PIN method should be opt-in like the self-select PIN, and not issued at agency discretion.

Many companies, both in the tax preparation and tax fraud prevention business, will tell you that you don’t need the IP PIN. This is not the same thing as saying you don’t need a parachute while travelling on a commercial airline, but it’s a lot like saying you don’t need a seatbelt in moving vehicle.

While the IRS figures out how to keep all taxpayers safe (hint: universally available IP PINs), there are things you can do. (The IRS has a “Dirty Dozen” list of crimes to avoid.) The three most important action items: Protect your personally identifiable information, always do a background check on your tax preparer, and file as early as possible.

If you’re concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated each month.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

 

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.



Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team