Over the past few years, it is not uncommon to hear that a major company was the victim of a hack resulting in individuals’ sensitive data being stolen. In fact, last month there was a data breach at Equifax that was estimated to affect nearly half of the U.S. population. During these breaches information such as names, Social Security numbers, addresses, and birthdates can be stolen. While this information can be used to fraudulently open credit cards and damage your credit, there can be tax implications as well.
One common method of tax fraud is that taxpayers may receive a phone call from someone claiming to be from the Internal Revenue Service (“IRS”). Typically the person on the line will have your personal data and demand immediate payment for taxes they claim you owe. They may also claim there is a lawsuit against you by the IRS, threaten arrest or deportation, or revocation of your license. Many times when an individual receives a call like this, they are intimidated that someone claiming to be from the IRS is calling and pay the amount demanded.
The IRS will not make first contact with a taxpayer via a telephone call. The IRS will always mail a bill or notice first. The IRS will also not demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe. The IRS will not require you to use a specific method of payment, such as a prepaid debit card or wiring money to a certain account. The IRS will never ask you for a credit or debit card over the phone. Finally, the IRS will not threaten arrest for non-payment. If you receive a call with these characteristics, then it is a fraudulent call. IRS Commissioner John Koskinen provides a good rule of thumb, “If you are surprised to be hearing from us, then you are not hearing from us.”
A second method of tax identity theft is when someone uses your Social Security number to file a tax return to claim a fraudulent refund. With names, addresses, and Social Security numbers available to criminals from these data breaches, many times a fraudulent return will include your name, a stranger’s name for the spouse, and potentially list dependents that are not related to you. In general, these fraudulent returns will be electronically filed early in the season, with the hope that the bogus return will be filed and fraudulent refund issued before you file your real return.
Many times, taxpayers are not aware that they were a victim of tax identity theft until they electronically file their actual return. Since your particular name and Social Security number have already been used to file a return for that year, your real return will be rejected. At this point, you will need to file your return by paper since it cannot be accepted electronically.
There are steps that you should take if you are a victim of tax identity theft. First, you should file a complaint with the Federal Trade Commission at identitytheft.gov. Second, you will want to file a police report with your local police agency. This will help establish a timeline, should you have issues later down the road. In addition, you should also contact one of the three major credit bureaus (Equifax, Experian, or TransUnion) to place a fraud alert on your credit records. This will help you know if the criminal is using your personal data to do more than file a fraudulent tax return. Also, you will want to complete a Form 14039, Identity Theft Affidavit, on the paper return that you mail in. This is your way to notify the IRS about the identity theft, and alert them to the fraudulent return that was previously filed using your information.
The IRS is working to put additional security measures place to verify that returns belong to the correct individuals on the front end, as opposed to paying out fraudulent refunds, then having to resolve the problem on the back end. If you have any questions about tax identity theft, please contact us and we would be happy to discuss!