Identity theft may not be your main concern this tax season, but it definitely should be on your radar.
What is tax identity theft or tax-related identity theft?
The official IRS website states that “tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund.”
Although this type of identity theft may sound like a rare occurrence, it actually affects more people than you might think. In fact, according to Fraud.org, “tax identity theft was the single biggest type of identity theft complaints to the Federal Trade Commission in 2014. Conservative estimates put the cost of this fraud to the nation’s taxpayers at $5.2 billion annually.”
Clearly, there are reasons why you should be worried about tax identity theft. We asked several identity theft, cybersecurity, and finance experts to explain what they think you need to know about tax identity theft, what you should do if you do fall victim to tax identity theft, and what you can do to reduce your risk of becoming a victim this tax season.
What you should know: “It is a big problem that the IRS has been fighting a lot over the past decade. Most people find out they are a victim when they attempt to file their own return and the IRS sends a notice rejecting their return. Not only are taxpayers experiencing ID theft, many scammers are stealing the identity of their children.”
What victims should do: “If this happens to an individual, that person will have to submit additional paperwork to the IRS to prove who they are. Specifically, Form 14039 has to be submitted to the IRS. I also include the tax return that was rejected, proof of ID, and proof of residence. If the return is rejected because of a child credit issue, it is often necessary to provide proof of the child and that you are the parent/guardian responsible for the child's care.”
What you should do: “File as soon as possible, check your credit report regularly, and get a PIN from the IRS. Also, just guard your social security number as much as possible.”
What you should know: “Income tax identity theft, by which identity thieves file phony income tax returns with counterfeit W-2s using the Social Security number and name of their victims is still a major problem for the IRS and taxpayers, costing us all billions of dollars each year. Although the IRS has gotten a bit better about detecting income tax identity theft, it is still a multi-billion dollar problem each year and if it happens to you, it can create great problems and delays in getting your legitimate income tax refund. You find out that you have been a victim when you are contacted by the IRS informing you that an income tax return has already been filed using your Social Security number, and they cannot process your return and provide your refund until they have finished an investigation.
In 2015, a report of the Treasury Inspector General for Tax Administration (TIGTA) disclosed that despite IRS assurances to the contrary, it took the IRS an average of 278 days to resolve individual income tax identity theft cases and return the rightfully owed tax refund to the victimized taxpayer. In a heartening example of some good news, TIGTA now says that the IRS has lowered the time to resolve the income tax identity theft cases of individual taxpayers to 166 days, which, although to my mind, is still too long, is a significant improvement.
Recently, however, through the joint efforts of the Federal Trade Commission (FTC) and the IRS, you can now file electronically an IRS Form 14039 which is the form necessary to report if you have become a victim of income tax identity theft to the IRS. Being able to file this form now electronically should speed up the process of the IRS investigation of instances of income tax identity theft and reduce the time before you can get your income tax refund if one is due.”
What you should do: “Along with protecting the privacy of your Social Security number as much as possible, the best thing you can do to protect yourself from income tax identity theft is to file your income tax return as soon as possible in order to make sure your return is filed prior to that of an identity thief. Income tax identity theft only works if the identity thief files a tax return before you do.
In order to file a Form 14039 electronically, you should go to the FTC's www.Identitytheft.gov website where you will be asked questions necessary to automatically complete the form. Once the form is completed, you will be able to review it and, if it meets with your approval, submit the form directly to the IRS through the www.Identitytheft.gov website. You should also download and print out a copy of the form for your own records as well. You should receive a confirmation from the IRS of receipt of the form within thirty days.”
What victims should do: “If you do find yourself a victim of income tax identity theft, you should file a police report immediately and then file a paper tax return with an attached Form 14039 Identity Theft Affidavit along with a copy of the police report to the IRS to hasten the process of recovering your tax refund.”
What you should know: “If one tries to e-file their tax return and it is not accepted due to a duplicate copy already being filed, then they are likely subject to tax identity theft. In most cases, the perpetrators file these fraudulent returns early, so they are ahead of the victim in order to get their return accepted by the IRS first and before the IRS begins to catch on to the theft. Generally speaking, the person’s refund will be deposited in a bank account or more often taken in the form of a prepaid debit card which can be used for purchases or resold on the open market.”
What victims should do: “They should contact the IRS immediately to inform them of the theft. They will have to paper file with a special pin for a number of years ago. The most important thing is to let the IRS know so the real tax return will be accepted properly and without penalty.”
What you should do: “Be careful where you upload tax documents and send documents with your Social Security number. These documents should always be stored on secure servers with 256-bit encryption. Furthermore, do not send tax documents over email unless password-protected; however it would be better if uploaded on a secure server. The IRS will never call you, so do not believe any robo-dialed phone calls.
I have seen an increased number of phone scams this year where people are asked to pay off IRS debt or confirm their Social Security number over the phone. They are threatened with large fines or jail time, but this is completely fake as the IRS will never call or email anyone; all correspondence is via snail mail. Please be sure that the IRS has an updated mailing address on file so that valid correspondence will reach you.”
What you should know: “One of the best things to do to determine if you have been a victim of identity theft is to check regularly your credit reports at the three major credit reporting bureaus. Since you are allowed one free report each year, you should request one report from one of these bureaus every four months. There are also certain services which state that they are continually trolling the internet for fraudulent uses of your social security number and other personal information.
There are also some telltale signs that your personal information has been compromised:
What victims should do: “There are some very specific things to do. These include the following:
Should you get a PIN number for your tax returns?
Absolutely yes. One of the main concerns with any cyber breach where your social security number may have been obtained is that someone can file a tax return in your stead earlier in the year than you may file. Any return that the crook has filed will be sure to be eligible for a refund (why else would they file?) which they will then cash. If, however, you have the six-digit PIN from the IRS, they would need to know that before filing. If you complete the identity theft affidavit (Form IRS 14039) for the IRS, they can supply this PIN. You can also obtain a PIN online from the IRS.”
What you should do: “. . . place a freeze on all of your credit accounts. This means that no one will be able to apply for a credit card or any sort of credit in your name without removing the freeze. I understand that some people might find this inconvenient, but the freeze can be easily removed temporarily for a short period of time if you should have the need to apply for a loan or a new credit card. A small amount of inconvenience, in my opinion, is minor when compared to resolving the consequences of identity theft and having large credit card bills or a fraudulent tax return being submitted in your name.”
What you should know: “This occurs when a tax scammer obtains (steals) your personal information. A tax return is then filed in your name, typically claiming a large, but bogus, tax refund. That tax refund is then routed to an address that is not yours. The fraudsters will receive the money whether you were actually owed a refund. A person typically finds out they were a victim of this scam when they go to file a return and it is rejected by the IRS because ‘you have already filed a return’.
The IRS doesn't initiate contact with taxpayers by email, text messages, or social media channels to request personal or financial information. You will be initially contacted by mail. Another scam is to receive a call with a caller ID that says IRS, don’t be fooled.”
What you should do: “File early — Less time for scammers to get to you, be diligent with passwords — change them frequently and make them complex, (and) guard your personal information. Shred documents with personal information. Save it to secure online storage or be sure your computer is encrypted.”
What you should know: “You should look for tax-related issues that come up when you're not expecting it. (For instance) you have issues when filing a tax return because more than one tax return was filed using your identity (or) you have pending actions or receive notices for a tax return you didn't file.
What victims should do:
What you should do:
What you should know: “Tax identity theft was the number one type of identity theft according to the Federal Trade Commission in past years.
There is no foolproof way of avoiding tax identity fraud. Since Social Security numbers and other personal information are so widely available on cyber black markets, chances are that scammers already have the information they need to commit tax identity fraud against you. It’s your job to stay on top of your financial information to catch anything that looks suspicious.”
What you should do: “File your taxes as early as possible during tax season. Scammers depend on the fact that many taxpayers wait until late in tax-filing season to file. Filing early reduces the risk that a tax identity thief will be able to use your personal information to file fraudulently ahead of you. Scammers will also try and file your tax return as early as possible.
Thieves don’t need your credit card number or bank account information to steal your identity. A thief just needs one piece of information about you and they can easily gain access to the rest. It’s a common mistake thinking that a thief needs your actual credit card or credit card number to create an identity theft situation, but that’s no longer the case. Make sure to secure birth certificates, Social Security cards, credit cards that aren’t in use and passports in a safe deposit box or in a safe hidden at home.
Pay extra attention to snail mail. Snail mail identity theft is still very much a thing. Watch for your monthly billing statements from creditors and banks. Take note and check on statements that have not arrived, as it could be a sign your mail has been intercepted. If you order new checks, choose to pick them up at the bank vs. having them mailed. Also, never put mail in your private post box to be picked up by the mailman. Always put mail in a U.S. Postal Service mailbox.
Carefully review any financial statements monthly. Always watch your statements for suspicious activity and charges that appear that aren’t known. This is one of the best ways to catch fraud before it goes very far.”
How to know if you are a victim:
What victims should do:
Additional ways you can prevent tax identity theft:
What you should know: “Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. You may be unaware that this has happened until you efile your return and discover that a return already has been filed using your SSN. Here’s how to know if you’ve been a victim of tax identity theft:
What victims should do:
If your SSN has been compromised and you know or suspect you may be a victim of tax-related identity theft, take these additional steps:
What you should do:
As this tax season approaches, it’s important that you keep tax identity theft in mind. As the experts have explained, there are plenty of ways to lessen your risk of becoming a tax identity theft victim. Simply increasing your knowledge of tax identity theft can help. If you can follow the advice in this article, do your own research, and make sure you stay up-to-date on the latest identity theft trends, you will increase your chances of successfully avoiding this type of identity theft.
May 7th, 2021
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