Tax-related identity theft is on the rise and shows no signs of slowing down. Recently, the IRS announced that in 2017 it would delay payment of Earned Income Tax Credits and Additional Child Tax Credit refunds due to the frequent fraudulent abuse of these tax credits.
Tax-related identity theft occurs when someone files a fraudulent tax return under your social security number, most often to obtain refunds. This situation often can go unnoticed until one of the following indicators are present:
- More than one return was filed under your social security number (e.g., an e-filed return will be rejected because the IRS has already received a return for that social security number);
- You receive notices indicating that you owe additional tax or had refunds offset (e.g., taxes owed are larger than expected or reasonable); or
- You receive correspondence indicating you received income from sources you do not recognize (e.g., wages from a company for which you weren’t employed).
Unfortunately, as a result, most CPA’s that prepare returns are familiar with the IRS procedures to remedy tax-related identity theft (usually completing and attaching Form 14039 – Identity Theft Affidavit to your return).
Additionally, a taxpayer should take the following steps if their identity has been compromised:
- Contact your financial institutions and close any accounts fraudulently opened;
- Contact the three major credit bureaus and place a “fraud alert” on your credit records;
- File a complaint with the Federal Trade Commission;
- If applicable, respond immediately to any IRS correspondence; and
- Pay your taxes, even if paper filing is required.
Resolution of tax-return identity theft is not a quick process. According to the IRS, a typical tax-return identity theft case can take up to 180 days to resolve. Although, a 2014 report from the Treasury Inspector General for Tax Administration indicated the average time to resolve a case was 312 days and USA Today reported in January 2016 that average time to resolve a case was 278 days.
Despite all of the safeguards the IRS has implemented to combat tax-related identity theft (which often are to detect it after it happens), the easiest way taxpayers can combat tax-related identity theft is to file their returns as early as possible each year, which prevents fraudulent returns from being filed first.
About the author
G. Matt Barberich, Jr., provides business valuation, forensic accounting, and litigation support services for attorneys and clients