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How to Deal with Tax Identity Theft

Any type of identity theft can turn your life upside down. It creates financial problems and can tarnish your credit history, not to mention the time, money, and patience it takes to resolve. Now fraudsters are targeting your tax refund!

Tax-related identity theft occurs when someone uses your Social Security number (SSN) to file a tax return claiming a fraudulent refund. Thieves frequently file early to avoid detection, and make off with your refund before you’ve had a chance to file. The IRS reports that tax identity theft is on the rise. So it’s important to understand the warning signs and know how to deal with tax identity theft when it occurs.

Warning Signs

Did you file your taxes only to have it rejected by the IRS because a return using your Social Security number was already accepted? Or, did the IRS send you a letter saying it identified a suspicious return using your personal information? These are signs that your tax identity may be in the hands of criminals. Other warning signs include:

  • You owe additional taxes, refund offset, or have a collection action against you for a year you did not file a tax return.
  • IRS indicates you received wages from an employer you can’t identify.
  • Your state or federal benefits were reduced or cancelled because a government agency received information reporting an income change.

What to Do If You Are a Victim

If you’ve been the victim of tax identity theft, it’s important to act quickly to prevent any additional fraud from occurring. Unfortunately, your refunds will likely be delayed for an extended period while the IRS resolves the matter. A typical case can take about 180 days to complete.

Follow these steps to secure your personal information and any refund rightfully due from the IRS:

1. Identity Theft Affidavit with the IRS

If you did not receive a notice but believe you’ve been the victim of identity theft, contact the IRS Identity Protection Specialized Unit. You will also need to fill out the Identity Theft Affidavit.

2. Respond to Any IRS Notice

If the IRS receives a suspicious tax return filing, they may send a “5071C Letter” asking that you verify your identity. Typically, you can identify yourself over the phone or through the IRS's Identity Verification Service website.

3. Report Fraud to Federal Trade Commission (FTC)

Complaints from taxpayers help the FTC detect larger patterns of fraud and abuse. The FTC has a web-based reporting form that asks a few questions about the fraud you suffered. It should only take a moment to complete, and your participation will assist with the creation of programs to fight tax identity fraud.

4. Contact Your State Tax Agency

Although criminals typically target your federal return, you will want to also contact your state tax agency to the report income tax fraud. Call either the state’s tax hotline or go to their website and find the fraud reporting procudeures. Some states require you to fill out a form to mail.

5. Place a Fraud Alert on Your Credit Record

Call one of the nationwide credit reporting companies, such as Equifax, Experian or TransUnion. Ask for a fraud alert to be placed on your credit report. The company you call is required to contact the other two credit agencies so they will put the fraud alerts on their files too. An initial alert is good for 90 days. Taking this step makes it hard for someone to fraudulently open new accounts in your name.

6. Contact your Financial Institutions

When someone has enough of your personal information to file a tax return, they may be able to access your bank accounts. Contact your bank and other financial institutions to have a fraud alert placed on your account.

Dealing with Tax Identity Theft? Get Legal Help

Rebuilding your good name after tax identity theft is challenging. It's a good idea to consult with an experienced tax attorney who can help you recover financial losses and repair damages you may have suffered.

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Next Steps

Contact a qualified tax attorney to help you navigate your federal and/or state tax issues.

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