While most cases of identity theft start outside of the tax system, identity theft can have a substantial negative effect on your taxes. Identity thieves may use a taxpayer’s identity to fraudulently file a tax return and claim a refund. The taxpayer may not know anything is wrong until she tries to file a tax return and receives notice from the IRS that she has already filed a tax return for the year.
In other cases, the identity thief may use the taxpayer’s personal information to get a job, and report income from that job under the taxpayer’s social security number.
This post will provide some tips on protecting yourself from identity theft and on dealing with identity theft if you are a victim.
Email, Social Media, and Internet
The IRS does not contact taxpayers by email or social media to request personal information or notify taxpayers that they are being audited. If you receive one of these messages it is likely a phishing technique. Phishing involves someone using a fake identity to solicit personal information from you. If you receive such a message, forward it to the IRS at firstname.lastname@example.org
Traditional Identity Theft
Identity thieves access your personal information by many different ways, including:
- Stealing your wallet or purse
- Posing as someone who needs your personal information through a phone call
- Looking through your trash for personal information
- Accessing information you provide through an unsecure website.
Identity Thief Uses Your Personal Information to Land a Job
If a taxpayer’s social security number is stolen, another individual may use it to get a job. The identity thief’s employer may report income by that person to the IRS using the taxpayer’s social security number, thus making it appear that the taxpayer did not report all of her income on her tax return.
If this happens to you, you should contact the IRS to let them know that you never worked for the employer and the income is not yours. After some questioning, the IRS will update your return to remove the fictitious income.
Identity Thief Uses Your Personal Information to Receive Fraudulent Refunds
Many tax credits are available that are refundable (meaning a refund can exceed the amount of estimated and withheld taxes paid in during the year). Examples of refundable tax credits include the Earned Income Tax Credit, the refundable Child Tax Credit, and the refundable American Opportunity Credit. Identity thieves can use your social security number to create fraudulent documents and file tax returns to claim these refundable credits.
These fraudulent returns tend to be filed very early during tax season. This is done so the fraudulent tax return will be processed before the true tax return and will be less likely to raise red flags with the IRS. When you file your return, you may receive a letter from the IRS that indicates that more than one tax return was filed. If you receive such a letter, you should contact the IRS (or have your tax return preparer do so) to notify them that you believe your identity was stolen.
Steps to Take with the IRS if You Believe You May Be an Identity Theft Victim
If your tax records are not affected by identity theft, but you believe you may be at risk because of a lost wallet, questionable credit card activity, or other suspicious activity, you may file Form 14039 Identity Theft Affidavit with the IRS. You will need to submit a copy of your valid government-issued identification, such as a Social Security card, driver’s license, or passport.
You may also contact the IRS Identity Protection Specialized Unit at 1-800-908-4490.
In identity theft situations, the IRS may issue you a PIN that must be submitted with your tax return. A tax return under your Social Security Number will not be accepted by IRS without the PIN.
How can you minimize the chance of becoming a victim?
- Don’t carry your Social Security card or any document(s) with your SSN on it.
- Don’t give a business your SSN just because they ask. Give it only when required.
- Protect your financial information.
- Check your credit report every 12 months.
- Secure personal information in your home.
- Protect your personal computers by using firewalls, anti-spam/virus software, update security patches, and change passwords for Internet accounts.
- Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.
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Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.