How To Deal With Tax Identity Theft

Tax-related identity theft usually happens when a criminal uses your Social Security number (SSN) or other personally identifiable information to file a fraudulent tax return. These returns seek outsized refunds to which you are not entitled and ask that the refunds go directly to the criminals. The Internal Revenue Service often pays the refunds before you or the agency know what happened.

Identifying tax-related identity theft can be difficult because the victims don't discover the tax fraud until weeks or months after it has happened. The IRS has taken steps to fight identity theft and provide resources to help victims resolve the problems it can create.

The IRS May Contact You

The IRS operates a taxpayer protection program to help identify suspicious income tax returns filed with your name, SSN, or other taxpayer identification number. The IRS may flag a return as suspicious for various reasons, but it will contact you if it finds any issues related to tax identity theft. If your return gets flagged, you will get an IRS notice asking you to verify your identity within 30 days.

You can usually verify your identity by calling the IRS at the number included in the letter. You should have a copy of a filed tax return available so the IRS can use information from the return to verify your identity. If you can't do so by phone, you must visit a taxpayer assistance center with a copy of the letter, photo identification, and the return at issue (if you filed one).

If the IRS determines that you filed the return at issue, the agency will continue processing the return and issue you a refund if needed. If you didn't file the return, the IRS will remove it from its records. Taxpayers who have yet to file a return may have to file their returns on paper if there is identity theft.

Some identity theft victims will get placed in the IRS's identity protection PIN program, where they get a new, six-digit PIN (IP PIN) each tax year to use as authentication when working with the agency.

Uncovering Tax-Related ID Theft

Most taxpayers don't discover they are victims of tax-related identity theft until the IRS notifies them of their return issues. But, any of the following events may show that you are a victim of tax-related identity theft:

• You get a notice that you have opened an online IRS account or that someone accessed or deactivated an existing account when you did nothing
• The IRS contacts you about a suspicious return you didn't file
• A return you e-filed gets rejected due to a duplicate SSN
• An employer you did not work for reported to the IRS that you earned wages
• The IRS sends you notice that you owe extra tax or are the subject of a collection action based on a tax return you didn't file

Suppose the IRS finds that you may be the victim of tax-related identity theft. In that case, it will stop payment on any tax refunds it owes you until it can determine that you are not the perpetrator of refund fraud and are the legitimate owner of the SSN.

Steps Victims Should Take

You can take some actions to protect yourself and rectify any IRS issues if you find you are the victim of tax identity theft. Unfortunately, the IRS usually takes four to six months to resolve the issue. If your case is complex, it may take a year.

You must file a paper copy if you discovered you were the victim of a possible identity theft scam when you could not e-file a return. You must also complete IRS Form 14039, Identity Theft Affidavit, and either attach it to your return, or file it online. The IRS will send you a letter acknowledging that it received the Form 14039.

You should also go to IdentityTheft.gov, operated by the Federal Trade Commission (FTC). Reporting tax identity theft online will automatically create an FTC identity theft report, an IRS identity theft affidavit, and a personal recovery plan.

Notify the Credit Reporting Agencies

If you know or suspect that you have been the victim of identity theft, you should contact all the major credit bureaus to place a fraud alert on your credit reports. The three largest agencies are Experian, Equifax, and TransUnion. You should also contact your financial institutions and notify them of the identity theft.

Contact Your State Tax Agency

Identity thieves who were able to file fraudulently and access your federal tax return information may also have access to your state tax return information. Both use your name, address, and SSN as identifiers. Most states' department of revenue websites will have information on reporting identity theft in their states.

Dealing With Tax Identity Theft? Get Legal Help

If scammers have used your personal or financial information to get a fraudulent refund and need help resolving the issue, a local tax lawyer can help. A tax attorney understands the IRS procedures for reporting tax fraud and monitoring your account to ensure it doesn't happen again.