Tax Season Identity Theft

Jan 28, 2013 by

Tax ID TheftIdentity thieves want your tax refund. Or, more precisely, they want a tax refund fabricated through a federal return filed under your name and Social Security number. And the IRS is ill prepared to stop them.

Tax ID Theft Explosion

Arguably the fastest growing form of identity theft, tax related ID theft has grown by 650% since 2008, according to the IRS. Close to a million returns were filed fraudulently in 2011. In its most common form, a thief files a tax return with the IRS under a stolen SSN. Naturally the return’s bottom line is a fat refund, delivered to the thief in the form of a prepaid card or check mailed to a likely untraceable address.

What Happens When You File?

Say a diligent thief filed a tax return early in tax season under your name and SSN. No one suspects anything is wrong until you send your legitimate return on April 15, like you always do. The IRS dutifully sends you a letter—‘Sorry, but you’ve already filed, and we’ve already sent your refund.’ Now what?

If you get a notice that your return has already been filed, get on the case immediately. The IRS says your first action should be to file its Form 14039, “Identity Theft Affidavit”. Use Form 14039 in either of two instances:

  • You’re a victim of identity theft AND the theft is affecting your federal tax records,

OR

  • You’ve experienced an event involving your personal information that may at some future time affect your federal tax records.

To prove you’re who you say you are, you must send along with the Affidavit a photocopy of your passport, driver’s license, Social Security card, or some other federal or state government issued ID.

How to Avoid Being Victimized by Tax Related ID Theft

The honest answer—and the IRS concedes as much—is the agency has no real defense against tax related ID theft. As you know, all it takes to file a return is a name and the SSN belonging to that name. Obtaining these two pieces of information is child’s play for a determined identity thief.

The precautions for avoiding tax related ID theft are not much different for ID theft generally, which again seems to indicate that there’s no strong defense or preventive measure for tax related ID theft specifically. Recommendations include (and you’ll have heard most or all these before):

  • Protect any documents that display your SSN. Don’t give out your SSN unless you can verify the need is legitimate.
  • Understand that the IRS never initiates contact with taxpayers by email.
  • Obtain and review carefully your three free credit reports annually.
  • Install good malware protection on your computer and keep it updated.
  • If you file your taxes online, be suspicious of a slow computer or strange pop-ups.
  • Your actual tax return is a treasure trove, so guard it closely. If you file by postal mail, hand your sealed envelope to a postal employee at a post office.

Since a tax ID thief depends on getting a fraudulent return to the IRS before the legitimate return is filed, one common sense defense is to file as early as possible. The documentation most people need to file must be sent by January 31, so aim for filing in early February.

Will You File Earlier to Beat Thieves to the IRS?

Does the prospect of tax related ID theft mean you’ll file your return earlier this year? Are you taking any other precautions? How might this crime wave be snuffed out? Might a password or PIN—set up securely by the taxpayer with the IRS and then recorded by the taxpayer on his or her return—be effective?

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