Tax-Related Identity Theft Schemes SoarBrandon Kerby
Over the past 3 years, the IRS paid out an estimated $5.8 billion in fraudulent refunds, and stopped an additional $24 billion of fraudulent refunds claimed, according to a 2015 report issued by the Government Accountability Office.
Clearly, tax-related identity theft schemes have risen dramatically in recent years. These “phishing” schemes frequently are carried out by criminals impersonating IRS agents over the phone or by email.
The objective of a phishing scheme is to trick the victim into providing confidential identifying information (Social Security Numbers, Dates of Birth, etc.), so that a criminal can file a fraudulent tax return under the victim’s name. The fraudulent return instructs the IRS to deposit a tax refund into a bank account held by the criminal.
A victim of tax identity theft will learn of the fraud when the IRS rejects the victim’s tax return, with an explanation that the IRS already received a tax return under that Social Security Number. Other possible signs are a missing or reduced refund, unexpected additional tax due, or an IRS notice that you have not reported a W-2 or 1099 to the IRS for an employer that you do not recognize.
As long as the victim contacts the IRS and documents the fraud, an innocent taxpayer will not be liable for refunds that were paid out to a criminal as a result of fraud. Here are the steps you can take to resolve the issue with the IRS.
Steps to Take if You Have Been Affected
- Follow the steps at www.identitytheft.gov for instructions for securing your accounts and contacting government offices.
- If you suspect you are a victim of tax-related identity theft, complete an Identity Theft Affidavit, IRS Form 14039, and submit it to the IRS according to the instructions at the bottom of the form.
- Be sure to still file your own tax returns. If the IRS rejected your tax return because another return was already filed under your Social Security Number, prepare a paper copy of the return, and file it by mail, along with the Identity Theft Affidavit. Consult a tax advisor for assistance as needed.
- To notify the IRS and have them monitor your account for fraudulent activity, call the IRS Identity Protection Specialized Unit at 1-800-908-4490. This may require a second phone call to follow up after the IRS has received Form 14039.
- Respond to any notices that the IRS has sent you, consulting your tax advisor for assistance as needed. Be sure to meet any deadlines contained in the notices, and consider requesting a collection hold to stop the IRS from taking collection actions against you until the identity theft is resolved.
- Use a Identity Protection Personal ID Number, if the IRS has given you one. In some circumstances where the IRS has identified fraudulent activity, the IRS will mail an Identity Protection Personal ID Number to the taxpayer, or invite the taxpayer to apply for one. Once this PIN is issued, the taxpayer needs to enter it when filing the tax return, as an additional security measure to verify the taxpayer’s identity.
Currently, the IRS will only assign a PIN number if it has identified your account as a potential case of identity theft. Residents of Florida, Georgia and Washington DC are allowed to “Opt-In” to the PIN procedure, as a “test market” for the process; hopefully it is rolled-out to the rest of the country soon.
As always, a bit of precaution goes a long way in preventing identity theft. Don’t give out your Social Security Number, and avoid carrying it with you. Use anti-virus software, and do not give out personal information over the phone, e-mail, or Internet. Finally, be cautious when dealing with the IRS, because they are frequently impersonated by criminals. Remember, the IRS will only initiate contact with you via U.S. Mail.
We understand that resolving identity theft is a traumatic, burdensome process, and we always like to offer a hand to help our clients prevent and resolve it. Feel free to contact us with your questions or concerns. We are happy to help guide you through the tax complications so you can move forward.