By Kristine Loomis, CPA, CVA, Wenatchee Certified Public Accountant; in collaboration with Accountants: Amanda Stephens, Accountant and Nathan Harmon
Identity Theft – Protecting Yourself and Recovering from Tax Return Fraud
Daily we hear about a new data breach exposing personal credit and financial information. Even the IRS isn’t immune. They recently announced their “Get Transcript” application was hacked allowing access to over 100,000 tax returns. Hackers break into information databases to gather confidential information such as social security numbers, credit card numbers, bank account numbers and other secure information. The bigger problem is the use of the information: it can be used to set up accounts, make purchases, obtain false identification or file tax returns. All of these data breaches are concerning, but when you combine identity theft with the IRS most of us react with panic and anger.
What is the biggest impact in regard to the IRS? Refund fraud.
The biggest problem for taxpayers is a false tax return being filed under their name. It provides an opportunity for the thief to receive a refund before anyone is aware. For example, someone obtains personal information to create a return. Once they are able to fill out the return, all of the income and payments can be manipulated to create a large refund. The return can be filed and they receive the refund. It can take the IRS months to match wage and expense information to the filed tax return; by which time the criminal has the funds and is long gone before fraud is detected.
Most taxpayers find out they are a victim of IRS identity theft in one of two ways: a letter from the IRS reporting suspicious activity or an electronically filed tax return is rejected notifying the taxpayer a tax return was previously filed.
If you receive a letter from the IRS notifying you of potential identity theft you should:
- Follow the instructions in the letter and make contact using the information provided.
- Contact one of the credit reporting agencies (Equifax, Experian, or TransUnion) to put a fraud alert on your account.
- Obtain a credit monitoring service. These are usually provided free of charge by the source company where the breach of the stolen information was made. This is often true when a large retailer is breached but not the case with the IRS.
- Fill out Form 8821-A IRS Disclosure Authorization.
- For subsequent years, request a special PIN number from the IRS used to verify your identity when filing returns.
If your return has been rejected due to a return already being filed under your name you should complete the above and:
- Call the IRS Identity Theft Hotline: 1-800-908-4490.
- Ask your tax preparer to file IRS Form 14039 Identity Theft Affidavit notifying the IRS of potential identity theft, with attached proof of identity. The IRS will provide the special PIN to file your return. Do not lose this PIN as it is not visible to IRS agents answering call center phones.
You can lessen your risk of identity theft by keeping all personal and financial records in a secure place, not carrying your Social Security card, not responding or clicking on links from suspicious e-mails and monitoring bank accounts / credit cards for unusual charges.
The IRS takes this seriously and is actively working on return fraud. Applying for your individual PIN is probably the most effective action.
Finally, the IRS never e-mails you nor generally calls you directly. If you get an e-mail appearing to be from the IRS immediately delete it. Don’t return voice mails left by individuals identifying themselves as IRS agents unless you were expecting a return call from a specific agent. If you find yourself a victim of IRS identity theft, your tax preparer can assist you in navigating the steps required to resolve the matter.
Kristine Loomis is a Certified Public Accountant with Cordell, Neher & Company, PLLC, a Wenatchee public accounting firm.