Be on the Lookout for Tax Identity Theft
February 2, 2015 Tax Advisor

Tax identify theft is the biggest and most prevalent tax scam going right now — and peak season is just around the corner for refund fraud.

This scam has become a big problem due primarily to its simplicity. Identity thieves steal their victims’ sensitive personal information — primarily Social Security numbers and birthdates — and then file fake tax returns requesting refunds in their name. If thieves file bogus returns before victims file their legitimate tax returns, the IRS will usually send a refund check to the thief.

Victims, meanwhile, are left with the task of having to demonstrate to the IRS that the first return filed was fraudulent. Doing so can take weeks or months and countless hours on the phone or at an IRS office. And until the problem is resolved, no legitimate refund check will be issued to the victim.

An Exploding Problem

Tax identity theft and refund fraud first surfaced in 2008 and has exploded in recent years. It’s estimated by the IRS that more than three million fraudulent tax refunds were sent to tax identity thieves last year alone, up from just 51,000 a few years ago. The total cost to taxpayers is estimated to be more than $5.2 billion.

Tax identity theft is now the largest category of identity theft complaints by far, according to the Federal Trade Commission (FTC). It accounted for 43 percent of all identity theft complaints in 2012, up from just 15 percent in 2010.

One of the biggest challenges when it comes to dealing with tax identity theft is the fact that most people don’t find out they are victims until it’s too late. Typically, taxpayers get a notice from the IRS after they have filed informing them that a tax return has already been filed using their Social Security number.

Now is the time to be especially diligent when it comes to guarding your Social Security number and other sensitive personal information. Most tax identity thieves strike early in the tax-filing season so they can file bogus returns before victims file their legitimate returns.

For example, if you receive an email, text or social media message supposedly from the IRS asking for your Social Security number or other personal information, don’t reply to it. The IRS will not use these communication methods to ask for your sensitive personal information. Instead, forward such messages to phishing@irs.gov for further investigation.

What If You Are Victimized?

If you do receive a notice from the IRS informing you that a bogus tax return has been filed in your name, contact the IRS Identity Protection Specialized Unit right away at (800) 908-4490. You may be asked to complete IRS Form 14309, which is an IRS Identity Theft Affidavit, and send with proof of identity (like a copy of your Social Security card or driver’s license) to the IRS. The Ohio Department of Taxation is taking similar precautions at the state level to help prevent fraud relating to tax identity theft and fraudulent refund requests.

In addition, you might also want to file an identity theft complaint with the FTC and your local authorities, as well as contact your certified public accountant or tax preparer. Also consider putting a fraud alert on your credit report by contacting one of the three main credit bureaus: TransUnion, Equifax or Experian. Whichever credit reporting company you contact, they will let the other two know about your fraud alert.

Tax identity theft is a problem that doesn’t appear to be going away any time soon. So be extra diligent this upcoming tax season, protect your identity and be on the lookout in case you’ve been victimized.

For additional information or if you have questions about tax identify theft, please contact us.

About the Authors

Cindy H. Mitchell
Cindy H. Mitchell
CPA
Director, Taxation Services

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