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Tax Identity Theft

by Kevin McKinley - February 15th, 2015

Posted Under: economics & policy

In the next few weeks thousands of taxpayers will get a negative surprise when they file their taxes (and it will have nothing to do with how much they owe).

What they might find out that someone has already used their Social Security number to file a false tax return, and collect a fraudulent refund from the IRS.

The aftermath of this happening to you can mean a delayed refund, piles of paperwork, and even a loss of certain income-sensitive benefits if the thieves file your return using an overly-inflated income figure.

Here’s how to prevent being victimized by “tax identity theft.”

The problem

According to the IRS, in the first six months of 2013 over 1.6 million taxpayers were affected by tax identity theft, an increase over the 271,000 similar incidents reported over the entire year of 2010.

The IRS caught or interrupted many of these attempts, but the Treasury’s Inspector General for Tax Administration has estimated that in 2011 $183 million was incorrectly issued to thieves.

The IRS is not sitting idle in the face of the growing problem. They have assigned 3,000 employees to the task of monitoring, investigating, and fixing cases of fraudulently-filed returns.

Last but not least, the Federal Trade Commission named this past week as “Tax Identity Theft Awareness Week”.

An ounce of prevention

The best way to avoid the problem is to protect your Social Security number as much as possible. Don’t provide it to anyone unless you are familiar with the party making the request, and it’s absolutely necessary.

Protect any documents that contain your Social Security number, and avoid sending it via email or regular mail if possible.

Instead of tossing or recycling any paper that contains the number or other sensitive information, put it through a shredder.

You should also monitor your credit report to see if anyone is already using your information to borrow money.

Go to annualcreditreport.com, where you can get one free report each year from each of the three major credit bureaus.

Some crooks might try to pry information from you by calling, texting, or emailing, pretending to be from the IRS.

But if the IRS needs to reach you, they will contact you via regular mail. So it’s a good idea to ignore and avoid any attempts that come in via any other way.

Finally, and sadly, the best way to prevent tax identity theft is to file your tax returns each year—one more reason to get going well before the April 15th deadline.

If you become a victim

Generally the IRS will notify you (via regular mail) if it appears that someone else has used your information to file a return and claim a refund.

Or perhaps you or your tax preparer will file your return electronically, only to have it rejected because the IRS thinks you have already filed your return.

You might even get a letter from the IRS stating that they have a return in your name that contains data that the department can’t reconcile, and would like an explanation from you.

Upon receiving the notification, your first inclination will be to panic—so go ahead and get that out of your system.

Once you’ve calmed down, contact the IRS via the number provided on the notice to explain your predicament.

They will probably tell you to complete and submit Form 14309, entitled “Identity Theft Affidavit” and available online at IRS.gov.

Then contact the police to report the crime, and follow any steps they recommend.

You should also go to tinyurl.com/cfreeze to contact each major credit bureau and place a “fraud alert” on your credit report.

While you’re talking with the bureaus, it may be a good idea to place a “freeze” on your credit report, which will hopefully help prevent even more trouble in the future.

And keep in mind that the IRS says it usually takes about six months to resolve cases of tax identity theft, making the tax filing process even more painful, costly, and time-consuming than ever.