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The process of filing taxes every year takes plenty of time and effort even if everything goes perfectly. Add to that the worry about tax return identity theft, and your stress levels are bound to skyrocket. Knowing the signs to watch out for and keeping a close watch on the status of your tax return can help you stay safe and minimize risks of falling victim to scammers.
What Is Fraudulent Tax Return Identity Theft?
If someone gets access to your Social Security number (SSN) and uses it to file a tax return with fraudulent claims, this is known as tax return identity theft. Victims often won’t even know they’ve been targeted until they e-file a return and are informed that their tax return has already been submitted! In some instances, you might get Letter 5071C from the IRS, saying that they have received a suspicious tax return with your name and SSN, and they need to verify your identity to process the return accurately. The letter includes quick and secure steps for you to verify your identity.
Red Flags to Watch Out For
There are no specific early warning signs that you are a target of tax return identity theft. However, if you know that your SSN has been compromised or suspect that this is the case, then you should assume that this information might be used to commit tax return fraud. If this happens, it is likely that the IRS will get in touch with you about:
- A duplicate tax return that was filed using your SSN
- IRS records showing that you received a salary or other income from an employer for whom you have not worked
- Owing additional taxes, an offset refund, or collection action initiated against you for a year when you have not filed taxes
How to Protect Yourself from Tax Fraud
Filing your tax return early on can be a deterrent to prospective fraudsters. If you file first and a scammer files later using your personal information, their return will be rejected for being a duplicate filing. This effectively minimizes the chance of you falling victim to a tax fraud scheme.
One common ruse that a lot of people fall for are email links claiming to be from the IRS, which are actually sent with malicious intent by would-be identity thieves. Remember that the IRS sends notices by mail and does not seek your financial or personal information through texts, emails, or social media platforms. While there is no limit to the ingenuity and planning that criminals can go to in order to steal your personal information to commit tax fraud, there are some common scams to watch out for. These include phishing, hoax phone calls, fake charities, schemes pretending to help victims of natural disasters, and impersonation, such as claiming to be from the Taxpayer Advocacy Panel or bankers.
Some specific steps you can take to stay safe are:
- Not clicking on links or downloading attachments sent by unknown senders
- Using passwords that are strong, instead of using your date of birth and other such easily accessible information
- Utilizing updated anti-virus security software that offers you firewalls
- Keeping your Social Security card locked away securely unless absolutely necessary and doing the same for your dependents
- Ensuring that your tax records are not easily available to anyone
- Not sharing sensitive information, such as your financial data or SSN with anyone unless absolutely necessary—and that, too, only after verifying that they are seeking this information for a legitimate purpose. Do not hesitate to enquire how they will ensure the security of your confidential data
- Making sure that your computer and all mobile devices that you use to access your personal information are password protected and not easily accessible to others
What to Do If Someone Does Steal Your ID
If your personal information was compromised as a result of a data breach, then you should try to find out what type of personal information was stolen. Not all breaches result in tax-related identity fraud.
Tax fraud is more likely if someone gets access to your SSN—as opposed to other types of identity theft, such as credit card fraud. If you have confirmed that you are a victim of tax return identity theft or strongly suspect this, it is imperative that you act immediately.
- If an IRS letter triggered your suspicion, then call the phone number provided on the notice and report the incident immediately.
- If your electronically filed return was rejected due to a duplicate filing, then you must fill in IRS Form 14039, Identity Theft Affidavit; attach it to your tax return; and mail the package to the service center for your area. If you need to submit the form after your return has been filed, because you have been notified by IRS, or your ID has been stolen or compromised outside of filing season, mail the affidavit to the address in the instructions. Once the IRS receives the affidavit, they will start the resolution process.
- Even with the potential of identity theft, you must file your tax return and pay any taxes owed. If you are unable to file electronically because of the theft, then you must file a paper return.
The IRS also encourages you to report any suspicious online or email phishing scams to email@example.com. You can call the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484 to report phishing and other scams initiated by phone, mail, or fax.
If your identity has been compromised due to a stolen purse, wallet, questionable credit card activity or a credit report, contact the IRS Identity Protection Specialized Unit at 1-800-908-4490. Besides taking up the matter with the IRS and following their process in such matters, you must do the following:
- It is essential that you lodge a complaint about identity theft with the Federal Trade Commission (FTC) by phone to 877-438-4338 or online at IdentityTheft.gov.
- You can also file a police report to put the incident on record.
- Get a fraud alert placed on your credit records. You can do this by contacting one of the credit bureaus.
- Call up your bank and other financial institutions you are associated with to see if there are any new accounts opened in your name or any other such discrepancies that have occurred.
- Check with the state tax agency to see if a similar fraud has been perpetrated with relation to your state taxes.
How Long Will it Take to Get a Tax Refund After Identity Theft?
The IRS states that most cases will be handled in under 120 days. Due to backlogs from the Pandemic, it has taken IRS up to 360 days to work and close the Identity Theft cases.
The resolution of your identity theft case is contingent upon the number of cases pending before the IRS and the complexity of your individual case. Your case will be handled by the Identity Theft Victim Assistance Headquarters, which is staffed by personnel with specialized training to handle such cases.
How Does the IRS Handle Identity Theft Cases?
Since the IRS distributes about $300 billion in refunds, unscrupulous people see this money as a lucrative target. Once you contact the IRS about the identity theft or possibility of theft, they will advise you on how to proceed. A tax professional can also help you out with the process involved in handling this issue.
You will need to prove your identity with the help of documentation such as your SSN card, driver’s license or passport. Once the IRS confirms that you are a victim of identity theft, you might be issued a unique, six-digit number called the Identity Protection Personal Identification Number or IP PIN. Following this, you will get a new IP PIN from the IRS every year so as to enable you to file your return without any hitch. While the IRS website states that most cases are resolved within 120 days, there are no guarantees, and can currently take up to 360 days.
While the IRS, in collaboration with the state agencies and the tax industry, has put in place many safeguards to fight tax identity theft, it is still not foolproof. Statistics show that instances of tax- related identity theft is on the decline with such reports to the IRS falling by a significant 40% in 2017, as compared to the previous year. This is definitely a good sign, and by staying informed about possible pitfalls and taking precautions, you can help the IRS improve these figures.