5 Tips To Ensure You Don’t Fall Victim To Tax ID Theft

Tax Identity Theft Awareness Week is January 26-29. Did you know that in 2014, 32.8 percent of all identity theft complaints pertained to taxes or wages? The good news is, it’s down from 2012, when that number was 43 percent.

If you’ve been a victim of this crime, you know it sucks.

As a seasoned CPA, I’ve helped a number of clients through the process of resolving their correct tax identity with the IRS. It’s a long and cumbersome ordeal. I wouldn’t wish it on anyone. And if it happens while someone is waiting for their refund, they will eventually get it back but it could take almost a year.

Like I said, it sucks.

Every year, thousands of people are affected by identity thieves who file a fraudulent tax return on their behalf using their Social Security numbers. The fraudsters have in fact stolen their identity and created a fictitious tax return.

Believe me, it is not a fun call to have to tell your client, their tax return has electrically bounced back from the IRS because it appears as though someone has filed a tax return using their Social Security number.

Cue the freak out.

There’s really nothing to do next but hang tight. There is a special process to identify your true self to the IRS and you just have to wait while your tax return with your verified identity makes it through the IRS system. This is what takes time. Now, eventually you’ll get your money back or will be able to file and pay with your correct tax return. But it will take months with very little conversation or updates from the IRS.

I’ve seen some articles suggesting that taxpayers file early to avoid this, however, unless your tax return is relatively simple this is highly unrealistic. Many times you won’t even have all the documents necessary to prepare a corrected tax return before the middle of March.

Some states, such as Illinois, have stated that in an effort to combat tax fraud they will not be sending tax refunds until after the middle of March so they can utilize outside information to double check tax returns. Hopefully, this will cut down on some of the fraud, however, most of the fraud I have seen was at the federal, not state level.

So what’s a taxpayer to do?

Here are some tips on how you can reduce the risk of tax identity theft from the Federal Trade Commission:

  • Minimize personal information in purses or wallets, or on smartphones
  • Shred financial documents before disposing
  • Don’t give out personal information unless you know who’s asking for it and why they need it.
  • Keep personal information secure – at home, at the office, in your car
  • Don’t click on links sent in unsolicited email

If you find yourself in this position, remember, it’s not your fault. But you should consider hiring a tax professional to help you navigate the system.

If you’re a victim of tax identity theft, the FTC suggests the following steps:

  • Contact the IRS Identity Protection Specialized Unit at 800-908-4490 (8 a.m. to 8 p.m., local time)
  • File IRS Identity Theft Affidavit (form 14039)
  • Have valid identification (government-issued identification: Social Security card, driver’s license, or passport)
  • When your case is resolved, you will be issued an Identity Protection Pin
  • Go to irs.gov/identitytheft

Take comfort in the fact that it will eventually get resolved. And you’ll also have a new appreciation for working with the IRS.