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In an era where digital transactions and online interactions have become the norm, the specter of identity theft looms large, posing significant challenges and potential financial hazards for individuals. Tax-related identity theft is particularly insidious among the various forms of identity theft. It occurs when someone uses your stolen personal information, including your Social Security Number (SSN), to file a tax return in your name and claim a fraudulent refund. This jeopardizes your financial health and complicates your tax obligations with the Internal Revenue Service (IRS). Understanding the steps to take in the aftermath of identity theft and recognizing the measures the IRS employs to protect taxpayers can mitigate the impact and help restore your financial integrity.
Signs of Tax-Related ID Theft
According to the IRS, any of the following tax-related issues could indicate that your ID has been compromised:
You get a letter from the IRS inquiring about a suspicious tax return you did not file.
You can't e-file your tax return because of a duplicate Social Security number. In this case, you should file a paper tax return and Form 14039, Identity Theft Affidavit.
You get a tax transcript in the mail that you did not request.
You get an IRS notice that an online account has been created in your name.
You get an IRS notice that your existing online account has been accessed or disabled when you took no action.
You receive an IRS notice that you owe additional tax or refund offset or that you have had collection actions taken against you for a year in which you did not file a tax return.
IRS records indicate you received wages or other income from an employer you didn't work for.
You've been assigned an Employer Identification Number but did not request an EIN.
Immediate Steps for Taxpayers
Report the Incident - If you suspect or know your identity has been stolen, immediately report the incident to the IRS. You can do this by filing a Form 14039, Identity Theft Affidavit, which informs the IRS of the potential fraud. This step is crucial, as it alerts the IRS to scrutinize any tax return filed under your SSN more carefully. Form 14039 can be completed and submitted online at f14039.pdf (irs.gov), faxed or mailed to the IRS.
Contact Other Agencies—Besides the IRS, you should report identity theft to the Federal Trade Commission (FTC) at IdentityTheft.gov. This site is a central reporting point for identity theft and offers a recovery plan. Additionally, alerting the Social Security Administration and the major credit bureaus (Equifax, Experian, and TransUnion) can help prevent further misuse of your personal information.
Secure Your Personal Information - Change passwords for your online accounts, especially those related to financial institutions and email. Ensure your computer has up-to-date antivirus software, and consider a credit freeze or fraud alert on your credit reports to prevent new accounts from being opened in your name.
Stay Vigilant - Monitor your financial accounts and credit reports regularly for unauthorized transactions or changes. This proactive approach can help you catch any further attempts at identity theft early.
How the IRS Protects Taxpayers
The IRS has ramped up its efforts to combat tax-related identity theft with a multi-faceted approach focusing on prevention, detection, and victim assistance. The IRS continuously enhances security measures to prevent identity thieves from filing fraudulent tax returns. This includes employing advanced data analytics to flag suspicious returns and improving authentication procedures for online services.
The IRS has dedicated over 3,000 employees to work on identity theft cases, with more than 35,000 employees trained to recognize and assist victims. The agency uses sophisticated return-processing filters to identify returns that may be fraudulent, stopping the issuance of fraudulent refunds.
The IRS offers specialized assistance through its Identity Protection Specialized Unit (IPSU) for individuals affected by tax-related identity theft. It can issue an Identity Protection PIN (IP PIN). This six-digit number must be included on tax returns to verify the taxpayer's identity and Social Security Number.
The IP PIN was initially available only to identity theft victims or those deemed at significant risk. However, recognizing the escalating threat of identity theft, the IRS expanded the program, making it available to all taxpayers who wished to participate and could verify their identity.
Obtaining an IP PIN begins with the taxpayer verifying their identity with the IRS. This can be done online through the IRS's Get an Identity Protection PIN (IP PIN) tool, a secure platform designed for this purpose. However, the process is rigorous, reflecting the seriousness with which the IRS treats the security of taxpayer information. For those unable to validate their identity online, alternative methods include submitting IRS Form 15227 for those with an adjusted gross income of $72,000 or less or requesting an in-person appointment at an IRS Taxpayer Assistance Center.
Once a taxpayer is issued an IP PIN, it becomes an essential part of their tax filing process. The IP PIN must be included on their federal tax returns, serving as a unique identifier that helps the IRS verify the taxpayer's identity. Doing so prevents identity thieves from filing fraudulent tax returns using the taxpayer's Social Security number. It's important to note that the IP PIN is valid only for one calendar year and must be renewed annually. Each year, the IRS generates a new IP PIN for individuals in the program, which they can retrieve through the same secure IRS online tool or wait for a postal notification.
The significance of the IP PIN cannot be overstated for victims of identity theft. For those who have experienced the misuse of their Social Security number for tax fraud, the IP PIN acts as a safeguard for future tax filings. It ensures that even if their personal information is compromised again, the presence of the IP PIN will prevent fraudulent returns from being processed in their name. This protects the taxpayer's refund and aids in the broader fight against tax-related identity theft.
The journey to recovery after experiencing identity theft can be daunting, but taking decisive action and leveraging available resources can significantly ease the process. Taxpayers can mitigate the impact of identity theft by promptly reporting the theft to the IRS and other relevant agencies, securing personal information, and staying vigilant.
Please contact our offices for assistance in dealing with the IRS in case of identity theft.
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