Tax practitioners and their clients are concerned about the growing epidemic of tax-related identity theft in America – both refund theft and employment theft.
Refund theft occurs when a thief files a return before your client does, and the IRS, unable to detect any issues at the time of filing, erroneously issues a refund to the thief. This is the most common type of tax-related identity theft. Employment theft occurs when a thief uses your client’s Social Security number to obtain a job. Then, when tax time comes around, your client, unaware of the identity theft issue, files a return that does not report the income derived by the thief. Later, the IRS will send notices to your client, such as the common CP2000, Notice of Underreported Income, proposing a tax liability. Both types of tax-related identity theft can be a mess to resolve.
Identity theft continues to be a top priority for the IRS this tax season. The IRS has more than 3,000 employees working on identity theft cases and has trained more than 35,000 employees who can provide assistance when identity theft occurs (irs.gov). In an effort to prevent the issuance of fraudulent refunds at the time returns are being processed, the IRS has developed more than 80 filters. These filters utilize criteria based on confirmed identity theft tax returns, such as amounts claimed for income and withholding, filing requirements, prisoner status, taxpayer age and filing history. Additionally, the IRS uses an Identity Protection Personal Identification Number (IP-PIN). Victims are provided the IP-PIN in December and are instructed to enter the number on their tax returns. The IP-PIN lets the IRS know that the return is filed by the legitimate taxpayer.
Regardless of the precautions the IRS has taken, identity theft continues to be costly. In a press release issued Dec. 18, 2013, the Treasury Inspector General for Tax Administration (TIGTA) reported that during the 2013 filing season, the IRS identified 579,183 tax returns with $3.6 billion claimed in fraudulent refunds. The filter system was able to prevent the issuance of $3.47 billion (96.4%) of those refunds. However, millions of dollars were still lost. The National Taxpayer Advocate Service even submitted its 2013 Annual Report to Congress recommending various IRS-related identity theft improvements.
Clearly, identity theft is alarming and practitioners are forced to deal with it more often. If you find yourself facing identity theft problems for your clients, here are some steps to take. First, call the IRS Identity Protection Specialized Unit (IPSU) at (800) 908-4490. The IPSU will place a marker on your client’s account and monitor it more closely. Then, complete and file Form 14039, Identity Theft Affidavit. Make sure to submit the required documentation, such as a copy of your client’s passport, driver’s license or Social Security card. If your client is receiving IRS notices because of the identity theft, make sure to respond to the address/fax number shown on the notice. Explain the situation and include Form 14039 with the appropriate attachments. Finally, if the IRS issues your client an IP-PIN, file the return using that number. Using this number will protect your client and result in faster return processing and refund receipt.
For additional guidance and resources, visit our Identity Theft Information and Tools page.