2013 saw a significant spike in tax return related identity theft. According to the IRS, cases of identity theft were up 66% for the filing season a year ago. Based on what we have seen this season, that statistic is sure to rise.
Most people hate filing tax returns. Aside from being cumbersome, tax filings often come with unpleasant news. So, why would someone steal your identity in order to file a tax return? Because it’s a great way to create a fake refund and get cold-hard cash with little effort. Fortunately, the IRS is getting a lot more effective at finding culprits of such schemes. Last year the IRS apprehended $50 billion in fraudulent refund claims initiated by identity theft. That is a huge number.
Identity theft is often discovered when a return is e-filed and rejected by the IRS computers because there is already a return in their system with a matching Social Security Number. This can happen not only to the primary on the account, but also to a spouse or dependents. Stealing a child’s Social Security Number can be an easy target and the IRS won’t automatically know that it is fraudulent.
If you are a victim of tax related identity theft, there are some steps you should take right away:
- Have your tax preparer send in a paper-filed tax return with a complete Form 14039 Identity Theft Affidavit and copies of appropriate identification. This notifies the IRS of the potential theft so that they can begin an investigation. Be prepared to wait. The average investigation takes about six months.
- Run a credit check. If the thieves have your Social Security Number, they may also have or be able to gain access to your credit cards and other accounts. Federal law entitles every person to a free annual credit check. Visit the Federal Trade Commission’s website for more information.
- If you suspect that they may have access to your accounts, you can protect yourself by contacting the three major credit reporters: Transunion, Equifax and Experian. You can also contact the Federal Trade Commission and the police. The Federal Trade Commission provides an instructional guide for victims of identity theft with a step by step process here.
When the IRS resolves an identity theft case, they will issue the taxpayer a six digit PIN for each subsequent filing year. This will protect the taxpayer until the case is resolved. The PIN is active for the year it is issued and to go back and file or correct any previous year’s filings. Whether or not the thieves are successful, the IRS will not subtract any amount from your refund. However, your refund will be delayed while they complete their investigation.
If you want to take preventative measures, the IRS is in the process of expanding their PIN program. If you filed a tax return with a Florida, Georgia, or District of Columbia address, you can use the IRS online PIN system to voluntarily receive a six digit identity protection PIN. Once you have received your PIN, you cannot opt out for the filing year and must provide that PIN to your tax preparer or when you self-file.
We strongly recommend seeking the help of a tax professional if there is any suspicion of identity theft. The IRS may reach out to you to verify your information. However, there are also many telephone and e-mail scams claiming to be the IRS and trying to get the same information. Knowing that someone out there has your personal information can be a very scary thing. Credit protection programs can help monitor your financial accounts, but they do not monitor for tax fraud. Make sure you have experienced professionals in your corner.