Tax-related identity theft remains one of the most common forms of identity theft. This occurs when a person files a fraudulent tax return using a legitimate social security number belonging to someone else for the purpose of getting a cash refund.
The IRS has been cracking down on this problem over the past several years by implementing new policies and procedures to help stop identity theft before it happens, and steps to take after the theft has occurred. To date the crackdown has worked. By implementing several provisions, the IRS prevented $1.1 billion fraudulent refunds in 2016 on 171,000 tax returns. Having said that, cyber attacks are still on the rise, compromising taxpayers information on a daily basis while the cyber criminals behind the attacks become more sophisticated.
What has the IRS done to prevent the filing of fraudulent returns – The IRS uses several different programs and features to prevent the filing of fraudulent returns. These programs and features are continuously being updated to combat new issues.
A handful of Jellison CPA clients are familiar with the Identity Protection PIN (IP PIN). IP PIN is a unique six-digit number that is assigned to identify theft victims which they use when e-filing their federal tax return. The number is used to identify the person filing the tax return as the rightful filer. The IP PIN is only used after a known incident of identity theft has occurred. The IRS also send notices to taxpayers whose returns have been flagged and requires that they call to verify information, such as income, job listed etc.
What happens when your tax information has been stolen? There is really no way of being able to tell that you have fallen victim to identity theft until your tax professional has attempted to file your return and it is rejected. You might be a victim of identity theft if you receive (1) a notice from the IRS indicating that more than one tax return was filed with the same name (2) a notice for a year that a tax return was not filed or (3) receive a notice stating that the income and payment information the IRS has on file do not match what was reported on the tax return. First thing you should do is to follow the IRS procedures for reporting a fraudulent return. The IRS will often NOT talk to the tax professional, even with a Power of Attorney on file. They would prefer to speak directly to the taxpayer. Fraud alerts should be added to your credit records & financial institutions. You will receive a notice when the case has been resolved but the length of time for resolution varies. Most cases are resolved within 120 days, more complicated cases may take 180 days or more meaning your refund is delayed for up to six months.