Did you know that individual tax refunds are a prime target for cybercriminals looking to cash in on stolen identities? According to the IRS, there were 597,000 tax returns with confirmed cases of identity theft in 2017 and 883,000 cases in the year prior. Learn why the IRS advises taxpayers to file as soon as possible, as well as the common warning signs of tax-related identity theft.
Tax-related identity theft occurs when a criminal uses a stolen Social Security number to claim a tax refund in the victim’s name. The unfortunate victim may then have to spend months rectifying false deductions, incorrectly reported income, and other lingering issues with their tax return.
According to the IRS, tax-related identity theft is one of the most common tax scams, and it’s most prevalent during filing season when taxpayers are preparing their returns on their own or hiring a tax professional to assist them. Often, the victim doesn’t even learn about the fraud until their own tax return is rejected because a criminal has already submitted a return using the same Social Security number.
Why the IRS Recommends Filing Early
The IRS accepts only one tax return per Social Security number, so if a taxpayer can file their authentic tax return before a potential criminal can file their fraudulent one, they may be able to beat an identity thief to the punch. On the other hand, if a criminal succeeds in filing their fraudulent return first, it could take months for the victim to resolve issues associated with the return.
In the race to beat a potential identity thief, some taxpayers may attempt to file an incomplete tax return with the intention of finishing it later, but that strategy could have negative consequences. The taxpayer could be charged penalties and interest for any delays in submitting a fully completed return, or multiple errors on a return could attract the attention of the IRS and trigger a second look or even an audit.
Experts advise taxpayers to file as soon as they have collected all of the necessary documents, such as W-2s, 1099s, and mortgage interest statements. And, of course, taxpayers should listen to the advice of their retained financial or tax professional.
Know the Warning Signs
The IRS advises taxpayers to stay alert to these common warning signs that they may be a victim of tax-related identity theft:
- A letter from the IRS inquiring about a suspicious tax return
- A rejected e-filing because of previous filing using the same Social Security number
- A tax transcript in the mail that the victim didn’t request
- An IRS notice that an online account in the victim’s name has been created, accessed, or disabled, even though the victim didn’t take any action
- An IRS notice that the victim owes additional taxes, a refund offset, or has had collection actions taken against them for a year in which they did not file a tax return
- IRS records that indicate wages from an employer that is unfamiliar to the victim
Protect Yourself Before Tax Season Begins and Year-Round
The good news is that there are preventative steps you can take to help better protect yourself and your loved ones from tax-related identity theft. Download the paper, Tax-Related Identity Theft: How to Better Detect and Avoid It, to learn about the dangers of IRS impersonation, how tax-related identity theft can impact children and dependents, and steps you can take to protect yourself before tax season begins, as well as year-round.
If you suspect that you are a victim of tax-related identity theft, the IRS and the Federal Trade Commission (FTC) recommend the following steps:
- Respond immediately to any IRS notice by calling the phone number provided.
- File an Identity Theft Affidavit (IRS Form 14039) electronically at IdentityTheft.gov, if your e-filed return gets rejected because of an existing filing under your Social Security number, or if the IRS instructs you to do so. The FTC recommends downloading and storing a copy of the report for your own records.
- Continue to pay your taxes and file your tax return, even if you have to submit your tax return by mail. Be aware that reporting suspected tax identity theft to the IRS or FTC does NOT eliminate the need to pay taxes.
- Consider requesting a redacted copy (one with certain information blacked-out) of the fraudulent return from the IRS. The information could help you determine what details the thief may have about you and your family.
- Follow the FTC’s advice to consider placing a fraud alert, an extended fraud alert, or a credit freeze.
- Contact your financial institutions and close any financial or credit accounts opened without your permission or tampered with by identity thieves.