When your identity is stolen, you have so many potential issues to deal with — changing passwords, closing accounts, dealing with fraudulent charges, and placing fraud alerts with the credit bureaus — that you may forget about potential tax fraud. Armed with your personal information, identity thieves can file a fraudulent tax return in your name and receive a refund before you realize your information has been compromised. Sometimes taxpayers are unaware of the breach until they have problems filing their taxes.
What do you do if you fall victim to tax-related identity theft? Start by responding to any IRS notice as instructed. Your first hint that there is an issue could be a notice from the IRS asking you to verify your identity because of a suspicious tax return with your Social Security number.
Remember that almost all legitimate IRS contact will be through a letter in the mail. Since your information has already been compromised, you may receive threatening phone calls from scammers pretending to be IRS agents demanding immediate payments under threat of arrests or legal action. Do not fall for these scams.
If you find that you cannot file your taxes electronically because a return has already been filed in your name, you need to take immediate action. To avoid potential penalties, file your taxes using a traditional paper return and pay any taxes that you owe. At the same time, file an IRS Identity Theft Affidavit (Form 14039). You can include the affidavit with the paper return or follow the form's instructions to send it separately by mail or fax. Only file Form 14039 if your e-filing is rejected because a fraudulent duplicate was filed or if your Social Security number has been stolen and the IRS has notified you that you may be a victim of tax-related ID theft.
Once you are a confirmed victim of ID theft, you may be issued a separate and unique six-digit number known as an Identity Protection PIN (IP PIN). To ensure the integrity of your return, the IRS will send you a letter each year containing a new IP PIN.
By taking common-sense steps, you can reduce the likelihood that you will fall victim to tax-related ID theft. Protecting your Social Security number is the first step. Never carry your Social Security card with you; keep it in a secure place in your home. Be cautious in providing your Social Security number, and only supply it when absolutely necessary.
Protect your digital information with the same diligence. Make sure that all your computers and mobile devices are protected with sufficient anti-virus and anti-spamming software. Use sufficiently complex passwords and change them regularly, do not use the same password for multiple accounts, and do not undercut your security by writing down all the passwords in a readily accessible area. Only transfer information using secure methods — avoid unsecure Wi-Fi connections or hot spots.
These steps can help protect your personal information and foil potential tax fraud. For further suggestions on protective measures, see IRS Publication 4524, "Security Awareness for Taxpayers".
You can also do your part to reduce tax fraud by reporting any suspicious tax-related activity to the IRS, even if you are not directly affected. For instructions on reporting tax fraud, follow this chart on the IRS Website.
The IRS halted 1.4 million fraudulent returns in progress in 2015, saving $8.7 billion — but they can't do it alone. It takes a collaborative effort from everyone involved to beat tax fraud related to identity theft, including you.
If you would like to prevent becoming a victim of identity theft, check out our credit monitoring service.