Tax Return Identity Theft occurs when someone files a fraudulent tax return using your name and social security, intending to receive a fraudulent tax refund. Sadly, Tax Return Identity Theft is an increasingly common occurrence, affecting millions of taxpayers and costing the government billions of dollars.
If you suspect that you have been the victim of Tax Return Identity Theft, the first thing to do is not panic. The criminal has stolen the government’s money, not yours. Any tax refund you are entitled to is still your money, and you will receive it in due course. Unfortunately, the process the IRS must go through to determine that your tax return is valid and issue your refund may take a long time, sometimes 6 months or more after you file.
Signs of Tax Return Identity Theft:
You file your tax return, electronically or by mail, and receive a rejection notice that your return has already been filed.
You receive a correspondence from the IRS questioning items listed on your tax return, but you have not yet filed a tax return, or do not recognize the issues in question such as mortgage deduction for a home you do not own, earned income credit you did not claim, W2 or 1099 income from an unknown source, or the like.
You receive an unexpected refund from the IRS or a bank working as an agent issuing tax refunds, by check or direct deposit.
Someone filed a tax return using your name and social security number and claimed a refund. Typically, this occurs in January or early February before most tax payers have even received the documents needed to complete their tax return. Criminals make up income and deductions, file the return electronically using an online service or over the counter software, and directly deposit the refund into prepaid debit card available from most any grocery or big-box store. Once the refund is deposited, the criminal withdraws the money at an ATM and disappears. This can be done from almost anywhere in the world, and is almost impossible to trace.
How did they get your information?
All that is needed for a thief to perpetrate this type of crime is a name and the associated social security number. They don't even need your address. Typically they obtain the information by:
Most likely - buying or stealing it from sources within insurance companies, banks, brokers, medical offices, employers, colleges, or pretty much any financial institution you have dealt with. Most of us remember a time when social security numbers were commonly used, even to get a grocery store affinity card.
Via the internet – by intercepting emails or hacking websites, including government websites. This is increasingly common, since if successful, the criminals can gain access to millions of people’s information, and it can be done anonymously from almost anywhere in the world.
Prying it out of people over the phone or by email.
Sifting through documents in mail boxes or garbage.
Steps to take when you suspect Tax Return Identity Theft:
Don’t panic. The crime probably occurred months ago, and the criminal stole the government’s money, not yours. There are steps you should take to protect yourself from a larger identity theft, which could occur since someone has at least some of your personal information. 1. We recommend contacting one of the credit reporting bureaus to put an Initial Fraud Alert on your credit record. This tells creditors that you have victimized by identity theft, and is useful should the perpetrators attempt to open financial accounts using your information. You will also be able to receive a copy of your credit report, which you should review for unusual activity. The three credit bureaus are Experian, Equifax, and Transunion. We recommend Googling "Experian Initial Fraud Alert", "Equifax Initial Fraud Alert", or "Transunion Initial Fraud Alert" to locate the page to file your alert request, since the web addresses periodically change. There is no charge for an Initial Fraud Alert as the result of identity theft. The alert is good for 3 months. You can extend the fraud alert if you so desire. You only need to contact one credit bureau to place an Initial Fraud Alert. The other bureaus will automatically be alerted. Note that an Initial Fraud Alert may inhibit your ability to obtain credit, such as a credit card or mortgage. If you are looking to obtain credit, consult with your banker before initiating the alert. 2. Call your local police non-emergency number, and ask to file a police report for identity theft. If you haven’t experienced any other issue with your identity, tell the police that someone has fraudulently filed a tax return using your identity. An officer will probably take your report over the phone and give you a case number. The police will be limited in what they can do, since it is nearly impossible to determine where, when, or by whom the crime was committed, but filing a police report adds credibility to your identity theft claim. 3. Fill out an IRS form 14039, Identity Theft Affidavit. We recommend Googling “IRS Form 14039” to locate the current version of the form on the irs.gov website. If you haven’t experienced any other issue concerning your identity, select item 1 under Section A, Reason for Filing This Form. Include an explanation, such as your electronic filing was rejected because a tax return had previously been filed, and you have not previously filed a return. If you received a police report number, include this number and the contact information for your local police department. 4. Attach proof of identity to the form 14039, Identity Theft Affidavit, as described in Section D. A legible copy of your driver’s license is typically the easiest to provide. 5. If the issue is a fraudulent tax return, mail file your tax return, including a copy of the IRS form 14039, Identity Theft Affidavit and your proof of identity. If you are our client, we will send you a copy of your return for you to sign & mail in. We recommend mailing the return certified. If the issue is an IRS notice or other issue, follow the instructions listed on the notice, or the instructions on IRS form 14039, whichever is appropriate.
Many people choose to employ a credit monitoring service to help protect against identity theft. Unfortunately, these services do not protect against tax related identity theft. If you elect to purchase such a service, there are many to choose from, including offerings from credit reporting bureaus, banks, credit cards, and membership warehouses. We do not endorse any particular service, but if you decide to purchase a service, we recommend you select a trusted source.