Protecting Taxpayers from Tax-Related Identity Theft

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Tax-related identity theft occurs when someone uses your Social Security number to file a tax return in order to claim a fraudulent refund. Generally, the identity thief will file the fraudulent tax return early in the filing season, typically during January. You will most likely be unaware you have even been victimized until you file your tax return and learn that someone has already filed using your Social Security number.

Know the Warning Signs

You should be on alert for possible identity theft when:

  • Your electronically filed tax return is rejected by the IRS due to more than one return being filed using the same Social Security number.
  • You owe additional tax or have had collection actions taken against you for a year you did not file a tax return.
  • IRS records indicate you received wages from an employer unknown to you. 

When our firm suspects an identity theft issue with your tax return (typically due to an e-file rejection by the IRS), we will contact you to inform you of the occurrence.There will then need to be follow-up with the IRS to determine if they have already issued Letter 5071C (Identity Verification Letter). This letter will inform you of two methods of providing verification of your identity. This can be accomplished by calling the Identity Verification line (1-800-830-5084) or by using the online IRS Identity Verification Service. The online service is the quickest method and will ask you multiple-choice questions to verify whether or not the return flagged for further scrutiny was filed by you or someone else.  Please bear in mind that the IRS will only send Letter 5071C by mail. The IRS will never request that you verify your identity by contacting you by phone or email. If you receive such calls or emails, they are likely a scam

If Letter 5071C has not been issued, we will likely need to prepare Form 14039 Identity Theft Affidavit for you to submit to the IRS on a paper filed tax return. Form 14039 alerts the IRS that someone has accessed your personal information and it has affected your tax account since they have filed a return using your identifying information.  As an attachment to Form 14039, you will need to provide a copy of your Social Security card, driver’s license, U.S. Passport, military ID, or other government-issued ID card in order to prove your identity. Unfortunately, the filing of Form 14039 will delay the processing of your tax return as the normal processing time for an identity theft return can run 120 days or longer.      

After Form 14039 has been processed by the IRS, they will generally issue you a six-digit Identity Protection pin number for you to use in filing your tax returns going forward. The IRS has stated that they will issue a new pin number each year, in December. If working with the IRS has not brought a satisfactory resolution or you do not receive your six-digit pin number, you should contact the IRS Identity Protection Specialized Unit at 1-800-908-4490.            

Steps to Take in the Event of an Identity Theft Issue

When someone has enough of your personal information to file a fraudulent tax return, they can use your identity to commit other crimes. In addition to alerting the IRS as described above, you should also take the following steps:

  • File a report with the local police.
  • File a complaint with the Federal Trade Commission at or the FTC Identity Theft Hotline at 1-877-438-4338.
  • Place a “fraud alert” on your credit reports with the three major credit bureaus.
  • Alert your banks and other financial institutions you work with.

7 Easy Steps to Reduce Your Risk

  1. Do not carry your Social Security card or any document with your Social Security number on it.
  2. Do not give a business your Social Security number just because they ask for it. Only provide this information when absolutely necessary.
  3. Protect your personal financial information at home and on your computers.
  4. Check your credit reports annually.
  5. Check your credit card statements and bank account activity regularly.
  6. Review your Social Security Administration earnings statement annually.
  7. Do not give out your personal information over the phone, through the mail, or the internet unless you have initiated the contact or are sure you know who is asking. 

In Conclusion

Identity theft is one of the fastest growing crimes in the United States and around the world. It is a persistent and evolving threat and the harm it causes victims cannot be overstated. Today’s thieves are a formidable enemy. They are an adaptive adversary, constantly learning and changing their tactics to circumvent the safeguards put in place to stop them. Tax-related identity theft is no longer random individuals stealing personal information. We are dealing more and more with organized crime syndicates here and around the world. 

IRS Commissioner John Koskinen recently stated that no priority is higher for the IRS than making sure the tax system is secure and that they are continuing to do everything within their power to safeguard taxpayers and their personal information.   

If you have any questions or concerns regarding identity theft don’t hesitate to contact us!       

SKR+CO Expert
Bernie Benyak, CPA, CFP®, NSSA® Tax Director
Bernie has been in public accounting since 1995. His specialties include working with small business owners, relatively high net worth individuals, and real estate companies.