How Can You Prevent Taxpayer Identity Theft?

By John W. Cashman, Jr., CPA
Tax Manager at Gray, Gray & Gray, LLP

Identity theft road signWhile it is tax season for most of us, it is Christmas for online identity thieves. With so many people transferring their personal information and financial data via mail or electronically, unscrupulous individuals are having a field day. In most cases they are targeting tax refunds, using stolen social security numbers to assume your identity and taking the money that is rightfully yours.

Nobody is immune, and everybody should take steps to deter and prevent identity theft. The IRS is increasing its own efforts to detect and intercept online identity thieves. The IRS also offers several suggestions for steps you can take, along with recommendations on what to do if you fall victim to identity theft.

The IRS has made several changes to help prevent tax refund fraud before it can occur. For example, this year the IRS is limited direct deposit refunds made to a single taxpayer to three, with any subsequent refunds being made via paper check. This limit will also help deter tax preparers who improperly deposit client funds into their own accounts.

In addition the IRS is working to prevent online identity theft for those filing their taxes electronically.

  • The IRS Identity Protection PIN (IP PIN) is a unique six digit number that is assigned annually to victims of identity theft for use when filing their federal tax return that shows that a particular taxpayer is the rightful filer of the return
  • IRS is offering certain taxpayers the opportunity to opt into the IP PIN program
  • These are taxpayers who may be unaware that they are identity theft victims but IRS identified them because their accounts have indications of identity theft
  • This year, IRS uses an online process through its website that will allow taxpayers who have an IP PIN requirement and lose their IP PIN to create an account and receive an IP PIN online

Here are signs the IRS says you should look for that might indicate you have fallen victim to identity theft. Be alert if you receive a written notice from the IRS or learn from your tax professional that:

  • More than one tax return was filed for you
  • You owe additional tax, have a refund offset or have had collection actions taken against you for a year you did not file a tax return
  • IRS records indicate you received more wages than you actually earned
  • Your state or federal benefits were reduced or cancelled because the agency received information reporting an income change

If you suspect that someone may have accessed your personal information and is using your social security number to steal your tax return, take these steps immediately:

  • File a report with the local police
  • File a complaint with the Federal Trade Commission (FTC) or the FTC Identity Theft hotline
  • Contact one of the three major credit bureaus to place a “fraud alert” on your account (Equifax, Experian, or TransUnion)
  • Close any accounts that have been tampered with or opened fraudulently

In addition, if a taxpayer’s SSN has been compromised and the taxpayer knows or suspects he or she may be a victim of tax-related identity theft, a taxpayer should:

  • Respond immediately to any IRS notice and call the number provided
  • Complete IRS Form 14039, Identity Theft Affidavit. Use a fillable form at IRS’s website, print, then mail or fax according to instructions
  • Continue to pay your taxes and file your tax return, even if you must do so by paper
  • If you previously contacted IRS and did not have a resolution, contact the Identity Protection Specialized Unit

Of course, avoiding identity theft in the first place is the best way to avoid the hassle of dealing with the aftermath. The IRS offers several practical steps that a taxpayer can take to avoid becoming a victim of taxpayer identity theft:

  • Don’t carry your Social Security card or any documents that include your social security number (SSN) or Individual Taxpayer Identification Number (ITIN)
  • Don’t give a business your SSN or ITIN just because they ask – give it only when required
  • Guard your financial information closely
  • Check your credit report every 12 months
  • Review your Social Security Administration earnings statement annually
  • Secure personal information in your home
  • Protect your personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for Internet accounts
  • Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know with whom you are dealing

Victim case resolutions are extremely complex cases to resolve, frequently touching on multiple issues and multiple tax years. A typical case can take 120 days to resolve, and IRS is working to streamline its internal process and reduce that time period.

For more information on securing your financial and personal data, or for any other tax questions you may have, please contact Gray, Gray & Gray’s Tax Department.

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