Half of U.S. tax payers are unaware about identity theft risks

While consumers take steps to protect themselves against identity theft and remain concerned about the possibility of a data breach when sharing their personal information, they remain uneducated about the prevalence and methods of tax-related identity theft, according to PrivacyGuard.

This is a particularly alarming result because tax or wage-related fraud was the most common type of identity theft complaint in the recently released Federal Trade Commission 2010 Consumer Complaint Report.

Almost two thirds of respondents (64%) reported that they worry that the organization they are sharing their personal information with could suffer a data breach. Retailers were chosen overwhelmingly (45%) as the least trustworthy.

Surprisingly, when a data breach occurs, respondents are more likely (44%) to blame the institution that was breached than the thieves that stole the data (35%). Also, roughly a third of consumers admit to using the same login and password for each site they transact with, making a breach that much more damaging.

While many respondents lacked faith in retailers or other institutions to guard their personal information, the survey found a big increase in the level of trust that tax payers have in their tax preparer.

Despite cases of tax preparer identity theft in several states last year, only 30% reported this year that they are concerned when they choose a preparer about the possibility of becoming a victim of identity theft, while 11% reported being very concerned and another 30% are not at all concerned. Last year half of the survey respondents said they were somewhat or very concerned.

Respondents have grown increasingly ignorant about the methods the IRS uses to initiate contact with tax payers, with 50% selecting the wrong option: 37% believe the IRS can contact them via email, mail or phone and 13% believe that the IRS will contact them through email.

The IRS does not initiate contact with taxpayers through email. Last year the survey results showed a similar trend, with 19 percent admitting that they did not know how the IRS initiates contact and 33% selecting the email, mail or phone option.