Protect Yourself from Income Tax Identity Theft
The number of identity theft incidents involving taxpayers continues to soar. According to the U.S. Treasury Inspector General for Tax Administration (TIGTA), about 2.9 million incidents of tax-related identity theft occurred in 2013, compared with about 440,000 in 2010. A recent report by the Government Accountability Office also found that the IRS lost an estimated $5.8 billion to fraudulent refund claims in 2013, while blocking about $24 billion in attempts.
Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. The thief falsifies the information for income and taxes paid resulting in the IRS sending a sizable fraudulent refund either by wiring to an account, through the mail to an address where the mail is stolen or through a prepaid debt card. Generally, an identity thief will file a false return early in the filing season, before the identify theft victim files his or her legitimate return. The fraud often surfaces when the victim eventually files his or her return and the IRS becomes aware of the problem due to the filing of two returns with the same Social Security number. However, by that time it is too late. The IRS has issued the refund.
The IRS has stepped up its campaign against tax-related identity theft through taxpayer education, outreach and stronger fraud detection policies. The IRS’ Identity Protection PIN (IP PIN) program helps the IRS verify a taxpayer’s identity and accept their electronic or paper return. The IRS issues IP PINs to taxpayers who were victims of identity theft and whose cases have been resolved. The IP PIN must be present on taxpayer’s return when filed or the IRS system will reject it. However, at this time IP PINs are issued on a voluntary basis only to taxpayer’s who reside in Florida, Georgia or the District of Columbia. The IRS has dedicated more employees to resolve identity theft cases, as identity theft victims are experiencing long delays, up to an average of 278 days, before their identity theft issues are resolved, according to an April report by the U.S. TIGTA.
Congress has also taken notice of the sharp increase in tax-related identity theft cases. Sen. Bill Nelson (D-FL), introduced legislation this past March titled Identity Theft and Tax Fraud Prevention Act of 2015. The legislation requires the Department of the Treasury to establish a plan to reduce the time required to resolve tax-related identity theft cases to no more than 90 days on average, and issue an IP PIN to any individual requesting protection from theft-related fraud, among other recommendations.
It is important that taxpayers take steps to protect their personal identifiable information. Do not fall for common scams. An unexpected email purporting to be from the IRS is always a scam. The IRS does not initiate contact with taxpayers by email or social media to request personal or financial information. An unexpected phone call from someone claiming to be an IRS agent, threatening you either with arrest or deportation if you fail to pay immediately, is a scam. Some identity theft prevention techniques include:
- Check credit reports annually
- Secure personal financial information at home on your computer by using anti-spam/virus software
- Be careful when sharing your Social Security number and only share it when absolutely necessary
If you are a victim of identity theft, the following corrective actions should be taken:
- File a report with local law enforcement
- Inform the credit bureaus and consider putting a freeze on accounts
- Contact your financial institutions and close any accounts opened with your permission or tampered with
If your Social Security number is compromised and you know or suspect you are a victim of tax-related identity theft, take these additional steps:
- Respond immediately to any IRS notice
- You or your tax professional should complete IRS Form 14039, Identity Theft Affidavit and mail it to the IRS
- Continue to pay your taxes and file your tax return, even if you must do so by paper
Written by Tim Reyes, Tax Manager
Skinner Fouch & Olson LLP