Tax Identity Theft

04/10/2012

I just read an interesting statistic regarding identity theft.  In 2009, 12% of all identity theft was related to taxes.  Now tax identity theft makes up 24% of all identity theft crimes reported to the Federal Trade Commission.

So how does tax identity theft work?  It can happen in a number of ways.  First, someone can steal your name and social security number and file a tax return using this information to claim your refund.  And here's the bad part.  If someone files a tax return using your name and SSN before you file your own return, you'll be stuck having to prove YOU really are yourself and THEY really are the criminals.

Second, someone could steal your social security number and use it for a job they get.  When the employer sends a W-2 to the IRS, it will match to your social security number and the IRS will believe the income from that job is yours.  When you don't account for it on your tax return, the IRS may come after you.

Third, someone will steal the social security number for a child or elderly dependent of yours, and then you have to prove that person really belongs on your tax return and you are entitled to the dependency exemption.

Tax identity theft generally means that if you were going to get a refund, it will be significantly deayed.  You will probably also spend a fair amount of money to clear your name.

How can you tell if you may have been a victim of tax identity theft?  If any of the following occur, tax identity theft is at least a possibility:

  • The IRS sends you a notice stating that more than one return was filed for you;
  • The IRS sends you a notice stating that you received paychecks from a company you never worked for;
  • The IRS says you owe taxes or there is a collection acton against you for a year you were not required to file a return;
  • The IRS sends you a notice stating you cannot claim someone as a dependant when you should be able to.

Tax identiy theft is growning so fast that the government is still catching up and trying to figuring out how to help consumers help themselves. It's a balancing act for the IRS.  How can the IRS send out people's refunds in a timely manner while also guarding against fraud. The IRS says it intercepted $1.4 billion worth of tax-related identity thefts in 2011. One way it does this is by reaching out to citizens whose returns contain abnormalities before processing the refunds associated with those returns. This is bad news if you're counting on getting that tax return money quickly to help make ends meet, but good news in the long run, since the fraud against you and the IRS is detected before it's final.  You should note that the IRS does not reach out to taxpayers by e-mail.  If you get an e-mail purporting to be from the IRS, be careful.  It could be from someone trying to steal your identity.

So what should you do if you believe you are a victim of tax-related identity theft?

  • Consider filing a report with the Federal Trade Commission's (FTC)Identity Theft database.
  • Consider calling the FTC's hotline for individual ID theft counseling: 1-877-ID-THEFT.
  • Consider placing a fraud alert on your credit reports at  www.experian.com, www.equifax.com and www.transunion.com.
  • Consider contacting the IRS Identity Protection Specialized Unit, toll-free at 800-908-4490.
  • Cosider visiting the IRS Taxpayer Advocate Service, which has a helpful toolkit.
  • Consider filling out the IRS Identity Theft Affidavit, Form 14039.

Hope this helps.