You may not even know your tax identity has been stolen until you file your return. Only then do you find out that someone has already claimed a refund – in your name. This type of fraud is a serious problem, and is getting worse. Here's what you need to know.
A growing problem
Almost 2.9 million incidents of tax-related identity theft occurred in 2013, up from nearly 1.8 million the previous year, according to the U.S. Treasury Inspector General for Tax Administration. The IRS has reported that, from 2011 through October 2014, it stopped 19 million suspicious returns and protected over $63 billion in fraudulent refunds.
While that's just a tiny fraction of the total number of individual returns filed and billions refunded, the impact of tax identity theft can be significant. Such theft typically takes the form of:
Refund fraud. Here, thieves steal legitimate taxpayers’ names and Social Security numbers (SSNs) and use them to file fraudulent returns, claiming they’re owed refunds. Most thieves try to file early enough in the year so that their victims haven’t yet filed their returns. Because the name and SSN on such returns appear legitimate, the IRS may issue refunds to fraud perpetrators.
Phishing scams. You might receive an email, phone call or letter purportedly from the IRS that asks you to provide your SSN or other personal information. If you provide it, thieves may use that information to take out credit in your name or sell it to others.
Fending off fraud
Nothing can guarantee complete immunity from identity theft, but you can reduce its likelihood. For starters, protect your SSN. Provide your SSN and other personal information only when absolutely necessary — and only when you’ve verified the identity of the requesting party.
Next, understand that the IRS doesn’t use email or social media to request personal information (such as your SSN or bank account password) or to provide a refund or initiate an audit. Instead, the agency most often contacts taxpayers through the U.S. Postal Service. One exception is that the IRS may call first when notifying a taxpayer of an audit, and then follow up with a written letter. If you receive an email claiming to be from the IRS and asking for personal information, don’t reply, open any attachments or click on any links.
So if you receive a phone call or letter claiming to be from the IRS, contact the agency to determine whether the claim is legitimate. (Several options are available at https://www.irs.gov/uac/Telephone-Assistance.) With a phone call, you also can ask for an employee badge number.
Alarm bells ring
If you receive an IRS notice stating that another return has been filed with your information or that you received wages from an employer other than your actual one, it’s possible that your identity has been stolen. Call the IRS Identity Protection Specialized Unit at 1-800-908-4490 to check the legitimacy of the letter and follow up.
And, if you receive a notice from the IRS stating that you’ve been a victim of identity theft, follow all the instructions included in the letter. Typically, this will require completing the Identity Theft Affidavit.
Dealing with the aftermath
Although prevention is best, even careful taxpayers can be victimized by tax identity theft. If it happens to you, contact the IRS — and your financial advisor, who can help you get your financial life back on track.
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