In recent years, we have learned of a number of instances where our clients have been victims of tax-related identity theft. Below we explain what tax-related identity theft is and steps that should be considered by anyone who has become, or suspects they have become, a victim of identity theft.
What is tax-related identity theft?
Tax-related identity theft involves someone stealing an individual’s social security (or tax identification) number in order to file a fraudulent return claiming a fraudulent refund. Taxpayers typically discover the identity theft when attempting to e-file a tax return only to learn that a tax return has already been filed using the taxpayer’s social security number.
One may also learn of identity theft by receiving a letter from the IRS indicating that the IRS has identified a suspicious return using the taxpayer’s social security number. In many cases, the fraudulent filer claims a refund in an amount less than the payments or credits on the account, which is a flag to the Internal Revenue Service.
There are also IRS impersonation scams that continue, such as bogus phone calls and phishing e-mails from those attempting to extract undue payments from taxpayers. It is important to remember that the IRS generally contacts taxpayers only by mail, at least initially.
Personal risk management – Action steps if tax-related identity theft is suspected:
1. If your attempted e-filed return has been rejected because another one has been previously filed for the tax year, you should paper file your return and include – for each spouse separately if a joint return – a Form 14039, Identity Theft Affidavit and a copy of each spouse’s identification. If the e-filed return was attempted on or near the due date, make sure the paper return is sent within the five-day cure period (IRS Publication 4164). As always, use a traceable delivery service. Thereafter, you should contact the IRS’s identity theft line at 800-908-4490 (8:00 a.m. to 8:00 p.m. local time).
2. If you received a notice from IRS that IRS suspects that a fraudulent return was attempted on your account, you should respond immediately to the notice by calling the number provided on the notice. Relevant IRS letters/notices include a 5071C letter (telling a taxpayer that the IRS received a tax return with his/her name and/or social security number and needs to verify identity), 4883C letter (informing a taxpayer that IRS needs more information to verify identity in order to process the tax return accurately), 12C letter (advising that IRS has received the tax return; however, additional information is needed in order to process the return), and 4310C letter (IRS Identified ID Theft Post-Adjustment Letter).
3. Arrange with IRS to receive an Identity Protection Personal Identification Number (IP PIN) (which is a six-digit number assigned to eligible taxpayers that helps prevent the misuse of your Social Security number on fraudulent federal income tax returns). IRS will thereafter issue a CP01A Notice with the IP PIN. Currently, IP PINs are available to any victim of tax-related identification theft and any resident taxpayers of Florida, Georgia or the District of Columbia (the three jurisdictions with the highest per-capita incidents of identity theft). IP PINs are currently issued only in January, and each IP PIN user receives a different IP PIN each January. IP PIN correspondence must be retained; they are difficult to have reissued.
4. You can obtain a copy of any fraudulent tax return; ask IRS when you call.
5. File a police report.
6. File a report with the Federal Trade Commission at https://www.ftc.gov/news-events/media-resources/identity-theft-and-data-security/filing-complaint or 877-ID-THEFT.
7. File a report with the Treasury Inspector General for Tax Administration at http://www.treasury.gov/tigta/contact_report_scam.shtml or 800-366-4484.
8. Refer to IRS Publication 4535, Identity Theft Prevention and Victim Assistance, and Publication 5027, Identity Theft Information for Taxpayers. The IRS identity theft website is at https://www.irs.gov/Individuals/Identity-Protection.
9. Contact the three credit reporting bureaus to activate a fraud alert (which requires lenders to take extra precautions to verify your identity before granting credit in your name) and/or a credit freeze (which prevents lenders from seeing your credit report unless you specifically grant them access).
- Equifax at www.equifax.com, 800-766-0008
- Experian at www.experian.com, 888-397-3742
- TransUnion at www.transunion.com, 800-680-7289
10. Be patient. IRS has made great strides in identifying tax-related identity theft cases and in taking early measures to assist in prevention; however, the entire process in resolving a taxpayer’s account will take time. Remember also that IRS will likely freeze any refund while it completes such resolution.
Personal risk management – general tips for preventing identity theft:
- Minimize personal information in purses or wallets; consider an RFID blocking wallet; retain copies of such information
- Shred any documents with personal information
- Avoid giving personal information by telephone
- Protect computers with firewalls, antivirus protection, and security patches
- Refrain from opening or clicking links to unsolicited e-mail
- Monitor accounts and review financial statements frequently
- Check that mail has not arrived previously opened
- Review credit reports frequently
- Consider an identity theft protection service, such as LifeLock