Ask Liz Weston

Tax fraud and tax-related identity theft isn’t exactly rampant–there were 50,000 complaints in 2006, compared to nearly 10 million cases of identity theft total. But it does appear to be on the rise, and the last thing you want after the hassle of preparing your return is to find out your refund has been swiped by some bad guy.

Janice Chaffin, head of Symantec’s Norton Business Unit, offers these tax season safety tips:

1. Carefully select your tax prep provider or software.
Visit the IRS Web site for approved software partners that support online filing. If you use a tax prep provider, don’t just go with someone who promises big refunds. Ask if friends have used him/her before.

2. When ready to eFile, make sure your Internet connection is safe.
When you are using an online tax prep service, look for indications that the connection is encrypted (you should see the address change to “https” and a lock symbol appear in the browser frame). Don’t prepare or file taxes on a shared, insecure connection like the open Wi-Fi network in your neighborhood coffee shop.

3. Turn off (or remove) any peer-to-peer file sharing services.
If you use peer-to-peer services (like LimeWire, Kazaa, BitTorrent), you can inadvertently allow a criminal anywhere in the world to find your tax file record (usually a pdf file) on your computer, revealing all your personal information. It is best not to use these services, during tax season or any other time of the year.

4. Encrypt and secure any pdf copies of the return on your computer
In your My Documents view, right-click a file name to select “Encrypt.” Print out a copy and put in a safe location in your home. Back up or store additional copies to save someplace else.

5. Make sure your Internet security software is on and up-to-date.
Symantec advises all computer users to keep their security software updated; keep their computer systems clean and continue to use general best practices for staying safe online. Find more information on how to prevent criminals from invading your computer here.

photo credit: Archie McPhee Seattle

Some critics disparage the database breach laws that force companies to reveal when your private personal information has been compromised. Only a small percentage of such stolen information is used to commit theft, they say.

Except if you’re a victim of a database breach, your risk of becoming an identity theft victim is four times higher than the that of the general population.

That is the conclusion of a new Javelin Strategy & Research study:

Overall, Javelin’s 2008 Identity Fraud Survey found that 4.32% of U.S. adults had experienced fraud within the past 12 months. Yet of the 11% that said they had been notified of a data breach within the past 12 months, one in five reported that they had also been the victim of some kind of fraud within the past 12 months. That means victims who had been notified of a data breach were almost four times more likely to be victims of fraud as well. The pattern of increased fraud victimization among consumers notified of a breach within the past 12 months remains consistent from 2006 to 2008, indicating that this is not a one-time anomaly.

If you’ve been notified that your data has been compromised, you should:

• Closely monitor your existing accounts
• Consider a credit freeze, particularly if your Social Security number was compromised
• Otherwise, put a fraud alert on your credit reports.

Some good news and bad news about identity theft.

First the bad: In 2008, the number of identity theft victims surged 22 percent to 9.9 million over the previous year, says a study released this week by Javelin Strategy & Research. That reverses a previous trend in which identity theft had been gradually declining.

But the good news is that the cost to consumers fell 31 percent to $496. Victims and companies are able to detect the fraud more quickly and are limiting how much is stolen, Javelin says.

It comes as no shocker that the report lists the failing economy as a primary reason for the spike in identity theft. (“Overall criminal activity tends to increase when there is a recession,” Javelin says.)

But what might surprise some is that despite all of the news about hacking attacks and phishing, low-tech methods are still favored among thieves. Lost or stolen wallets represented 43% of all incidents, the report said. That compares with 19% of thefts that occurred during a transaction; 13% of thefts committed by friends, family or employees; 11% online theft; 11% data breach; 3% stolen paper mail.

Other findings:

• Women were 26% more likely to be victims of fraud than men in 2008

• 71% of the fraud started occurring less than a week from when the data was first stolen, up from 33% in 2005

• The total annual fraud amount for 2008 is up 7% from last year to $48 billion. That is substantially lower when compared to the 2004 level of $60 billion

Hear me discuss tips for stopping identity theft cold by CLICKING HERE.

Also, check out my other advice on ID theft:

• How can I freeze my credit?

• What should I do if my sister is an identity thief?

• Do dead people have to worry about ID theft?

• Dangerous checks in the mail

• The hysteria over identity theft

• Banks hang fraud victims high and dry

More alerts than ever

Dear Liz: My sister, who is a 29-year-old single mother of three children, has committed identity theft by taking out loans and credit cards using my mother’s name. Her total debt is $30,000.

My parents are torn about what to do. I feel that she needs to be turned in so that they don’t have to pay this debt themselves, using their retirement money to do so.

They are concerned for the kids, but I feel that she needs to learn a lesson and that the family can take care of the kids. My sister suffers from bipolar disorder. I’m not sure what she would do if my parents turn her in.

Answer: If your mother lives in California or one of the other states that allows credit freezes, she should put one in place immediately — as should you and the rest of your family.

A credit freeze prevents anyone from opening credit accounts in your name, and is a much stronger protection than the fraud alerts that credit bureaus typically recommend.

A family member who has stolen one person’s identity could well steal the identities of others, because she probably knows the essential details — names, Social Security numbers, dates of birth and addresses — that would allow her to commit more of these crimes.

You seem to understand that to avoid responsibility for this debt, your mother almost certainly will need to file a police report, which means your sister could be prosecuted and sent to jail.

Occasionally lenders will let a victim off the hook without such a report if the thief admits the deed, commits to making payments and has the means to do so, said Linda Foley. She is co-founder of San Diego’s Identity Theft Resource Center, which helps victims of this kind of fraud.

The family typically needs to hire a lawyer to conduct such negotiations and draw up the necessary paperwork, Foley said.

It doesn’t sound like your sister’s a great candidate for this kind of deal, however, unless she’s gotten her act more together than your letter would indicate.

Your best move now, after recommending credit freezes for your family members, is to point your parents to the Identity Theft Resource Center, which has resources for victims of familial identity theft. Then back off. This is your parents’ decision to make.

Q: My stepson is a victim of identity theft. Are there any government agencies or other organizations that he might contact for help?

A: The only good thing about the identity theft epidemic — the Federal Trade Commission estimates 9.9 million victims in 2003 alone — is that plenty of resources have sprung up to help the victims.

Your stepson still has a lot of work ahead of him. He can turn to others for education and information, but he’s the one who will need to contact the credit bureaus, file a police report and take the other steps necessary to clear his name.

He can’t expect anyone else to do the work for him, and he’ll be lucky if any official investigation is conducted. Most police departments place a pretty low priority on identity crimes, and research firm Gartner has estimated that the thieves face only a 1-in-700 chance of being caught.

But your stepson can limit the damage. He can get information from the FTC by visiting its consumer website at www.consumer.gov/idtheft/ or by calling (877) FTC-HELP (382-4357). Make sure he gets a copy of the FTC’s “ID Theft: When Bad Things Happen to Your Good Name.”

He also can check out the Identity Theft Resource Center, a nonprofit organization that recently won a National Crime Victim Service Award from the Department of Justice. Your stepson can visit its website at http://www.idtheftcenter.org or call the center at (858) 693-7935.