Tax Identity Theft Fraud is a small piece of the booming identity theft industry. In a March 2016 report from the Treasury Inspector General for Tax Administration (TIGTA), a watchdog of the Internal Revenue Service, the Service reported it identified 42,148 tax returns with $227 million claimed in fraudulent refunds, and prevented the issuance of $180.6 million (79.6%) in fraudulent refunds. The IRS also identified and confirmed 31,578 fraudulent returns as well as identified 20,224 potentially fraudulent tax returns filed by prisoners. Furthermore, the Internal Revenue Service prevented the issuance of $193.8 million in fraudulent tax refunds as a result of its identity theft filters.
In general, identity theft is the fraudulent use of an individual’s private identifying information for financial gain. Tax identity theft fraud occurs when the use of an individual’s private identifying information is used to file a return and claim a refund. Identity thieves seek ways to gather personal information from unsuspecting individuals to commit various acts of fraud. Many taxpayers don’t know their information has been compromised until their returns are filed.
There are warning signs that would indicate your identity has been used to file a false return:
1) More than one tax return was filed using your Social Security Number;
2) You owe additional tax, refund or offset or have had collection actions taken against you for a year you did not file a return;
3) IRS records indicate you received wages or other income from an employer or payer for whom you did not work or do not recognize.
If you have been an identity theft victim, the Federal Trade Commission recommends:
1) File a complaint with the FTC at www.identitytheft.gov;
2) Contact one of the three major credit bureaus and place a “fraud alert” on your credit records;
3) Contact your financial institutions, and close any financial and/or credit accounts opened without your permission or tampered with by identity thieves.
If you have been a tax identity theft victim, the Internal Revenue Service recommends:
1) Respond immediately to any IRS notice; call the number provided or, if instructed, go to www.idverify.irs.gov;
2) Complete IRS Form 14039, Identity Theft Affidavit, if your e-filed return rejects because of a duplicate filing under your Social Security Number or you are instructed to do so. The author suggests filing a police report and attaching it to the affidavit. Future income tax filings may require an IP PIN. An IP PIN is a unique six-digit number that the IRS issues to tax identity theft victims and that the Service uses to identify returns;
3) Continue to pay your taxes and file your return, even if you must do so by paper.
There are a number of strategies that individuals can take to prevent your identity from being stolen or used fraudulently:
1) Be aware of emails and/or phone calls asking for personal information. (The IRS never initiates action about a tax matter via email and/or telephone. They always send a notice in the mail);
2) Never disclose or provide personal information to an unverified source;
3) Review bank and credit card statements for unusual activity;
4) Use security software with firewall and anti-virus protection;
5) Carefully choose your tax preparer or e-filing partner;
6) Invest in a document shredder.
Ron Friedman, principal of Ron Friedman, CPA has over fifteen years of tax and accounting experience, most notably in tax resolution matters. He can be reached at firstname.lastname@example.org or 914.830.4369.