Tax Identity Theft: Protecting Your Credit and Finances
What is Tax-Related Identity Theft?
The main cause for tax identity theft occurs when someone files a tax return using your Social Security Number (SSN). Many times, criminals will pursue someone else’s personalized tax returns in order to claim a fraudulent tax refund. Additionally, criminals may have used your SSN to obtain employment records, information on credit and other confidential information.
Victims of tax-related identity theft face substantial financial obstacles. Not only are you unable to file your own returns (or claim your tax refund), but it also may indicate other concurrent financial issues. Unauthorized loans, credit cards and other accounts may have been opened using the victim’s identity. Victims are typically encouraged to freeze their credit when tax-related identity theft occurs. They may also need to work with creditors and credit reporting agencies to clear their name of any fraudulent activity.
How Does Tax Identity Theft Happen?
Tax-related identity theft happens when a taxpayers’ sensitive information is confiscated or has been randomly publicized. Many times, taxpayers encounter this issue due to data breaches, cybersecurity hacks and flaws in existing systems designed to protect an individual’s information.
Tax-related identity theft often occurs in February and early March, as criminals must file the fraudulent returns before the real taxpayers file their legitimate ones. The IRS has designated teams for identity fraud, making supplemental safeguards and also changing many of the requirements used to file and authorize returns. Despite these efforts, identity-related tax fraud does still occur — and it’s important everyday Americans are ready should it happen.
How to Know That You Are Targeted
If you happen to be victimized by tax fraud, there are some things to know to prepare you. First, your legitimate tax return may be sent back flagged by the IRS. When you go to file your tax return, the IRS will reject it if a return has already been filed for your SSN. If you filed a paper return, you would get a rejection notice in the mail, alerting you that your return has already been filed.
In the event that a criminal uses your SSN for employment, you usually will not learn of the issue until your returns have been filed and processed. Once the IRS sees that your reported income does not match the income reported by employers to your SSN, they will send you a letter saying you failed to report income, or that you owe additional taxes.
It’s important to note that all communications from the IRS will come via mail. The agency will not call, text or email you regarding your returns or any suspicious activity. Do not provide sensitive information to anyone posing to be an IRS agent via these methods and report the issue to the U.S. Treasury Inspector General for Tax Administration.
What to Do Next
If you discover that you are the victim of tax identity theft, you’ll need to report it to both the IRS and the Federal Trade Commission.
Specifically, you’ll need to:
- Fill out Letter 5071C, if you’ve received it. The IRS may send you Letter 5071C if it flags your return as suspicious or suspects fraud has been committed. This form requires you to verify your identity and breaks down the steps for doing so. Follow these directions exactly and take any additional steps recommended once your identity has been confirmed.
- Use Form 14039 to alert the IRS of the issue. Fill out the form, along with a copy of your Social Security card and driver’s license, to Internal Revenue Service, P.O. Box 9039, Andover, MA, 01810-0939. Make sure to send the letter by certified mail to ensure it arrives safely and untampered with. If you received a notice in the mail, include this with your letter as well.
- Apply for an Identity Protection PIN. These are six-digit numbers that the IRS will use to confirm your identity on all future returns and filings.
- Notify the Federal Trade Commission. File an identity theft report at IdentityTheft.gov in order to alert the FTC. This website can also help you create a plan of action for responding to identity theft.
- Contact your state tax agency. There may be additional steps your state requires when identity theft occurs.
If you tried to e-file and got rejected, you should go ahead and file your paper return and pay any taxes you owe via mail. If at any point you need help in the process, call the IRS Identity Protection Specialized Unit at (800) 908-4490 for assistance. An agent can walk you through the appropriate steps to both report and respond to the issue.
Reducing Your Risk
If you aren’t already the victim of tax-related identity theft, you should take action to ensure you never become one. This means protecting your personal information, shredding sensitive documents and using strong passwords on all online accounts.
You can also:
- Lock your mailbox.
- Use a secure computer on a secure network when e-filing.
- Check your credit report annually for suspicious activity.
- Install a firewall and antivirus software on your computer.
- Learn how to recognize phishing emails and fraudulent requests for information.
- Keep sensitive documents (like your Social Security card) in a safety deposit box.
- Only provide your SSN when absolutely necessary.
You should also file your returns as early as possible. Criminals cannot file a return using your SSN if one has already been filed. Make it a point to file your taxes as soon as you have the information necessary to do so.
Call Plan IV for Tax Fraud Advice, Identity Theft Insurance and More
Our experienced staff at Plan IV can explain the types of tax-related insurance coverage and help walk you through the steps to make sure the bad guys don’t win in 2020!