Any form of identity theft can be costly, unsettling, and take months — sometimes years — to fully recover from and repair. But tax-related identity theft can be particularly disturbing because it involves the IRS, about which many already harbor suspicion and anxiety. Although the IRS has taken significant steps in recent years to help minimize the occurrence of tax-related identity theft, this type of fraud continues to occur. Here's how to avoid becoming a victim.
If criminals use your information to file an income tax return to claim your refund, the first notification of fraud you receive may be a denial of your return. Tax returns are identified via Social Security numbers (SSNs) and the IRS won't accept two returns with the same taxpayer identity. Thieves make a point of filing as early as possible to get a jump on the legitimate taxpayer.
Tax-related identity theft isn't limited to personal returns. Business identity theft can occur when a fraud perpetrator uses an Employer Identification Number (EIN) associated with your business to file a return. In either case, if the IRS receives a fraudulent request for a refund, it could issue it to the criminal via direct deposit or check.
Often, the IRS is responsible for uncovering tax-related identity fraud when confronted with the problem of two separate returns. But you also should be on the lookout for red flags, for example:
If it appears your tax-related identity has been stolen, your need to complete IRS Form 14039, Identity Theft Affidavit as soon as possible. The IRS then will assign your case to one of its employees who's trained to help identify-theft victims. The employee will determine the scope of the fraud, make any necessary corrections to IRS records and assign to you a personal identification number to prevent criminals from using your SSN or EIN to file returns in the future.
You may also need to notify your state's tax authority. Although less prevalent (because refunds generally are smaller), it's possible someone could use your SSN or EIN to file a fake state tax return.
Of course, the best defense against tax-related identity theft is offense. File early before a potential scammer can file a fraudulent return in your name. Ensure that your computer is well-protected from viruses, malware and other hacker weapons and watch out for phishing emails. Also take advantage of the IRS's IP PIN program. After you verify your identity through the Secure Access authentication process, the IRS will issue you a six-digit number. You'll use this PIN for all communications with the IRS, including your tax filings.
If you suspect you've become a victim of fraud or have questions about protecting your own or your business' identity, contact us.
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