Tax identity theft (aka tax refund fraud) is a huge problem and is expected to soar again this tax season. Tax-related identity theft occurs when someone uses your stolen personal information, including your social security number, to file a tax return claiming a fraudulent refund. It is an easy scam to pull off and the IRS has admitted the problem is growing quickly. One of the main reasons for the rapid growth is that it takes so little to file a false return — just your name, date of birth, and a social security number.
The IRS accepts tax filings by mail as early as January 1st and eFiled returns as early as January 27th. Employers must file Form W-2 showing the wages paid and taxes withheld for the year for each employee with the Social Security Administration. The due date applies to both e-filed and paper filed W-2s. The Jan. 31 deadline began two years ago as part of the Protecting Americans Against Tax Hikes (PATH) Act legislation to combat identity theft and refund fraud. The IRS doesn’t verify the employer submitted documents with the submitted tax return until months after the tax refunds are issued. The IRS position seems to be to pay out first and ask questions later.
The IRS has issued Identity Protection (IP) PIN numbers to victims of tax refund fraud to protect the taxpayer from becoming a victim again. An IP PIN helps the IRS verify a taxpayer’s identity and accept their electronic or paper tax return. When you have an IP PIN, it prevents someone else from filing a tax return with your social security number. For the taxpayer who hasn’t yet experienced tax return fraud, there is very little protection against becoming a victim. Taxpayers who have yet to become a victim of this scam cannot opt into the IP PIN program. You can read more about this scam and your eligibility at https://www.irs.gov/individuals/get-an-identity-protection-pin.
According to the IRS website, you may not know you’re a victim of identity theft until you’re notified by the IRS of a possible issue with your return.
Be alert to possible tax-related identity theft if:
- You receive a letter from the IRS inquiring about a suspicious tax return that you did not file.
- You can’t e-file your tax return because of a duplicate social security number.
- You receive a tax transcript in the mail that you did not request.
- You receive an IRS notice that an online account has been created in your name.
- You receive an IRS notice that your existing online account has been accessed or disabled when you took no action.
- You receive an IRS notice that you owe additional tax or refund offset, or that you have had collection actions taken against you for a year you did not file a tax return.
- IRS records indicate you received wages or other income from an employer you didn’t work for.
If your social security number is compromised and you know or suspect you are a victim of tax-related identity theft, the IRS recommends these actions:
- Respond immediately to any IRS notice; verify the number on the notice with the number on the IRS website. Call the number if the numbers match.
- If your e-filed return is rejected because of a duplicate filing under your social security number, or if the IRS instructs you to do so, complete IRS Form 14039, Identity Theft Affidavit (PDF). Use a fillable form at IRS.gov, print, then attach the form to your return and mail your return according to instructions.
- Visit IdentityTheft.gov for steps you should take right away to protect yourself and your financial accounts.
If you suspect you are a victim of tax identity theft, continue to pay your taxes and file your tax return (you must file a paper return). If one of your dependents is a victim of tax identity theft, you will also be required to file a paper return.
To lower your chance of becoming a victim of tax refund fraud, follow these steps:
- File your tax return as soon as possible.
- Keep your social security number protected and off of documents that request it, but don’t need it. Push back when it is asked for.
- Don’t carry your social security card or any documents with your SSN or Individual Taxpayer Identification Number (ITIN) on it.
- Check your credit report every 3 months.
- Secure personal information in your home.
- Protect your personal computers by using firewalls, anti-spam/virus software, update security patches, change passwords for Internet accounts, and use unique passwords for each account.
- Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.
The IRS will NEVER:
- Initiate contact with taxpayers by email, text or social media to request personal or financial information.
- Call taxpayers with threats of lawsuits or arrests.
- Call, email or text to request taxpayers’ IP PINs.
If your organization would like to discuss any fraud related topics further, please email David Hammarberg, Principal with McKonly & Asbury at firstname.lastname@example.org.
About the Author
David is a Partner with McKonly & Asbury. He has been an integral part of our firm for over 20 years, serving our clients in a variety of information technology and accounting capacities. David’s expertise and service focus areas inclu… Read more