Learn what tax ID theft is, how to prevent it and what to do if you think you’re a victim.
The New Year is time for fresh starts; New Year’s resolutions like eating better, dieting and even being more financially responsible. It’s also the beginning of tax season. So, while you may already be shirking your new workout schedule, the one thing you shouldn’t avoid is checking your mailbox (snail or electronic, depending on your company) for your W-2s, 1099s and other tax related documents.
It’s important to be on the lookout for your tax forms mainly because other people are also on the lookout for them. Not their own, but yours, your neighbors’, or anyone else they would potentially steal information from in order to create fraudulent tax returns.
Tax-related identity theft is one of the top types of ID theft reported to the Federal Trade Commission each year. The number is even higher for those submitting fraud reports to the Internal Revenue Service (the agency that handles taxes).
Tax Identity Theft Statistics
The IRS has been closely monitoring tax-related identity theft since 2015. Here is some of its most recent data:
Ways of becoming a tax identity theft victim
There are different ways of becoming a victim of tax-related ID theft. Here are the three most common:
Personal tax identity theft
Personal tax ID theft happens when someone has stolen your personal information in order to file a fraudulent return. This happens if someone uses your Social Security number for employment or they used the information from your W-2 to file income tax returns on your behalf and take your tax refund.
ID theft through a tax professional
This type of ID theft happens when fraudsters break into the secure systems of actual tax preparers and online tax preparing systems. This route gives them access to much more information than just one single person, making it a much larger tax-related fraud scheme. For tax-preparing software and systems, a fraudster could potentially just break into an individual’s account from a weak password.
Small business tax identity theft
This obviously targets small businesses and their employees. With the EIN number of a small business, identity thieves can not only file a fraudulent return for the business itself, it can create fake employees using stolen Social Security numbers and file tax returns through those. Lastly, if there is enough information available, they could even steal the information of the employees.
How to handle tax identity theft
Have you been a victim of tax-related identity theft?
You likely won’t know your identity has been stolen for tax related purposes until you file your income tax returns. Some signs you have been a target are that you received income from another employer that you did not work for, that another tax return was already filed using your SSN, or that you owe additional taxes for a year you haven’t filed taxes. The IRS may also send you a letter stating it has received a suspicious return using your Social Security number.
How to report tax identity theft to the IRS
If you think you may have been a victim of tax fraud, the tricky part is that you still need to file a return. Hopefully the IRS Taxpayer Protection Program will discover the fraud first and send you a notice in the mail. It is usually called Letter 4883C. If you receive a note like this, make sure to respond to the IRS promptly with the number provided in the letter so that you can verify your identity. If they don’t notice first and you find out when you try e-filing your return and are rejected, you will need to complete the IRS Identity Theft Form Affidavit, Form 14039, and submit a paper tax return instead.
For anyone who thinks they’ve been a victim of tax identity theft:
- File a complaint with the FTC as soon as you have discovered it.
- Contact one of the three major credit bureaus and place a fraud alert on your credit records: Experian Fraud Alert, TransUnion fraud alert, Equifax fraud alert (one will alert the other three).
- Contact your bank, credit card issuers or any other financial institutions that may have been compromised.
- If the thief opened any new accoujts , make sure to contact those businesses to have those accounts closed.
Tips for avoiding tax identity theft
- If you have your tax forms mailed to you, make sure to keep an eye out at the end of the January/beginning of February for them. Make sure to check your email as well. If you haven’t received them by the end of February, call up your employers and the companies of any accounts where there may be tax implications (this includes 401k firms, banks for interest-bearing accounts, investment firms for stock accounts, financial advisers and more).
- Strengthen your passwords. Make sure you have strong passwords on your email and all other accounts linked to any tax-related materials. The IRS has new password guidance that allows you to use a passphrase instead of a password.
- Make sure to keep your Social Security cards and other information in a safe location in your home and online. This means don’t give it out just anywhere.
- Beware of phishing scams that try to get your Social Security number or bank information by prompting you to enter it on a website you don’t recognize.
What is the IRS Doing to Prevent Tax-Related Identity Theft?
After seeing a spike in identity theft regarding people’s income tax returns, the IRS teamed up with state tax agencies and those in the tax community to create a public-private sector partnership called the Security Summit. Formed in 2015, the group has set up systems to stop suspected fake tax returns before they are processed, which has led to a steep decline in people reporting tax-related identity theft.
Can a government shutdown affect my tax returns, or reporting my tax-related identity theft?
The short answer is: YES, absolutely. The IRS currently advises victims of tax fraud to visit the FTC site: identitytheft.gov
. However, during a government shutdown, most employees are not working, and therefore are unable to help. Any sites like this one that require government employees to monitor them are temporarily down. Had you gone to this page with the latest government shutdown, you would have been met with this message:
Due to the government shutdown, we are unable to offer this website service at this time. Information about identity theft can be found on the FTC’s website at: Identity Theft | Consumer Information
We will resume normal operations when the government is funded.
If there is a prolonged shutdown, if could definitely impact how long your refund might take. It also means that the IRS won’t be available to answer any questions you might have when filing.
How long will it take to receive my refund after tax fraud?
Once tax identity fraud has been established, the IRS Identity Theft Assistance Department
will work with you to make sure your taxes are filed correctly and that anything suspicious is investigated and removed from your file. It can take up to 180 days for the process to be completed depending on how complex of a case it is. Occasionally it has taken more than a year.
What makes a case more complex? IRS investigators look at multiple variables to see how involved your case might be. Is the fraud just for this tax year or multiple years? Does it affect just your Social Security number or multiple individuals who may or may not be related? These all impact how long a case might be open.
If you are a victim of tax identity fraud, the one good thing to know is that the IRS is on your side. Hang in there and it’ll eventually get resolved and hopefully you will be set up so that you will avoid anything like this in future filing years.
Tax Identity Theft: Important Notice
In 2017, the IRS received 242,000 reports from taxpayers reporting themselves as identity theft victims. Although the overall number fell by 40 percent from 2016, the loss to the American taxpayer is still in the hundreds of millions of dollars. The IRS advises taxpayers and tax professionals to remain vigilant to the various scams and schemes used by data thieves. The IRS has published a yearly list of their “Dirty Dozen” tax scams and what you can do to help protect yourself.
If you know you are or think you may be a victim you can contact Community Tax and they can assist you in requesting an IRS Investigation.
You can also visit www.freeirsreport.com – this service allows you to receive a confidential IRS tax report that will contain a complimentary analysis and review from a licensed tax practitioner of your tax return filings. It can flag any areas of concern which include potential identity theft.
Article last modified on February 25, 2019. Published by Debt.com, LLC .