Can My Corporation Protect Me From Identity Theft?

January 8, 2008 8:38 PM

Banks, stores and other businesses can't be trusted with personal (and especially financial) data. Nearly every week, a hacker breaks into a website or steal a laptop with 100,000 social security numbers. Since the US has inadequate data protection safeguards (compared to the EU), could forming a corporation or trust help me?

I'm certainly no lawyer, but since corporations are basically "people" under the law, it seems I could form a corporation and have it own bank, utilities and other accounts which require disclosing my SSN to businesses that cannot be trusted with it. I guess I would give them a tax ID number instead. If my identity was stolen, then my liability would be limited since I could always form a new corporation and get a new tax ID number. I am told that getting a new SSN is impossible, at least according to a friend who's ex-boyfriend stole her identity and charged $20,000 in her name.

I read about "piercing the corporate veil" which makes me think that doing this may (or may not) have consequences. I mentioned this in a hurried conversation with a law student friend who said that a trust might be better.

I know you are not my lawyer, but before I get a lawyer to possibly set this up, I would like to know more. Would it work? Is a corporation, LLC or trust best? I am not trying to run a business or make money, and I am not trying to hide any info from the government, so I don't want to do anything illegal (or even questionable). I just want to protect myself from identity theft, which I am wildly afraid of since I saw what my friend had to go through.

posted by amfea to law & government (10 comments total)

Piercing the corporate veil refers to the courts compelling a corporations officers to be responsible for that corporations obligations.
posted by iamabot at 8:58 PM on January 8, 2008

If my identity was stolen, then my liability would be limited since I could always form a new corporation and get a new tax ID number.

If it was that easy, what's to stop you from running up the huge debt yourself, then walking away?
posted by smackfu at 9:17 PM on January 8, 2008

you're gonna pay a tax penalty for this. i know very little about tax law, but trusts and corporations have to file separate returns, and they aren't eligible for certain kinds of preferential treatment individual taxpayers receive.
posted by bruce at 9:22 PM on January 8, 2008

I don't think this will work if the only reason for the corporation is to shield your identity. Residential utilities may not serve a corporation in a residential area (suspecting fraud), or they may charge you commercial rates, typically higher than consumer rates. Credit card companies will still usually want the SS# of the holder of the card, even for "corporate" cards. With banks you open yourself to a different problem: how is the money going to get from you through the corporation into a bank account without looking like either income or fraud (or both)? If it looks like income, suddenly you are a personal holding company, which will cause you to pay additional taxes. If you want to look into this further, it's not a lawyer you need, but a CPA.
posted by ubiquity at 9:35 PM on January 8, 2008

I am a one-person S-Corporation (well, my business is), and it is essentially impossible to get credit solely in the company's name. In other words, all of my corporate banking and credit has both my corporations tax id and my SSN on it.

I don't know if this is typical, but that's the way it seems to roll around here.
posted by maxwelton at 9:46 PM on January 8, 2008

The reason businesses ask for SSNs is because that's how credit is tracked, which is essentially what, say, a utility company is issuing you when it sends electricity down the wire -- they're issuing "credit" on the bet that you'll pay your bill, and can ding your credit score for unpaid accounts.

So, sure, you could theoretically set up a corporation and have it do everything. But among the many problems with is idea is that the corporation will not inherit your personal credit rating. Your banking and credit will be much more complicated.

And that's really the crux of the matter. You have to make a risk analysis. Is the risk of identity theft greater than the many and varied costs you incur, obvious and inobvious, from your plan?

Nearly every week, a hacker breaks into a website or steal a laptop with 100,000 social security numbers.

So, if you do that math, 5.2 million people had their SSNs stolen last year. And the year before that. And the year before that. Etc, etc. The assertion is that nearly every single person in the US has had their identity stolen.

Umm, no.

While identity theft is real, reasonable safeguards will protect you from 99.999 percent of theft types. Is your postal mail delivered to a locked box? Do you shred your personal papers? Etc. etc.

After all, in your example provided, the theft didn't occur because of hacking. It occurred due to a disgruntled ex-boyfriend that got a hold of something he shouldn't have.
posted by Cool Papa Bell at 9:57 PM on January 8, 2008

I can't say for sure, but you might run afoul of zoning codes in your city if you try to pay your utilities, taxes, etc. through a "corporation." You'll at least send up a red flag that says "Hey, this person is trying to run a business out of their home!" (whether true or not).
posted by desjardins at 7:29 AM on January 9, 2008

One thing that might (IANA Lawyer, Accountant, CFP, or Astronaut) be worth thinking about is establishing a coop of like-minded (paranoid) people for some or all of these tasks. Once a group gets to be a certain size being treated as a 'proper' entity becomes easier (actual officers, business continuity). The coop acts as a cutout for its members and as long as it stays small and personal it shouldn't need to resort to credit-checks or the like to ensure compliance amongst its members.

Hell, depending on your local utilities' deregulation you might even be able to provide the service yourself by leasing bulk capacity from the traditional utilities.

If you do successfully set something like this up, I for one would be very interested in how it goes and what you find.
posted by Skorgu at 9:42 AM on January 9, 2008

Skorgu, how would the paranoid people trust each other? I'm not being sarcastic here.
posted by desjardins at 9:52 AM on January 9, 2008

Because they'd have something in common to help weed out the baddies (say, they or members of their family all served in the military, or they're all practicing Catholics and a member has to vouch for them, or they're all thiests and a member has to vouch for them and they swear a blood oath). And they'd organize it similar to a bank, and/or insurance company but accountable to the depositors/product users instead of outside shareholders to encourage accountability, best privacy practices, good terms, etc.

(Note: we just reinvented credit unions like Navy Federal and mutual insurance schemes like USAA and mutual aid/fellowship/insurance societies like the Knights of Columbus, Masons, etc.)

What you're asking about, limiting liability I case of fraud, etc. Are things banks, credit unions, etc. (Reputable ones anyways) do.
posted by Jahaza at 10:19 AM on January 9, 2008