If you’ve ever had your identity stolen – be it a stolen credit card or online fraud – you know the stress and panic that can come with trying to recover lost assets and prove that you are in fact you. Tax-related ID theft has recently become a bigger concern than ever. In fact, ID thieves have become so sophisticated that the IRS has recently had to temporarily shut down the tool they use to assist victims of ID theft, because ID thieves have discovered ways to hack into it. Fortunately, there are still steps you can take to protect yourself – or to recover your assets should you become the victim of tax identity theft. 

Identifying Tax-Related ID Theft

In good news, the IRS does a pretty good job of detecting tax-related ID theft, and will report it to the taxpayer if suspected. The IRS uses two main strategies for detecting ID theft on filed tax returns: 

1. Filters – During Filing
Identity theft filters are applied to all tax returns during processing. If a return is stopped by a filter, a letter is generated and mailed to the taxpayer requesting identity verification or other information. The one main problem with this approach is that it is overly sensitive. Of the 3.8 million returns that were suspended by identity theft filters last year, 34 percent were false positives! Still, it is always better to be safe than sorry, so should you receive such a letter from the IRS, be sure to respond immediately. 

2. Suspicious EIN Listings – Post-Filing
IRS examiners screen all filed tax returns for fraud potential. If a particular EIN has been used to report false income and withholding, the examiner will perform extensive research to locate the employer in question. If the employer is determined to be fictitious, the EIN is designated as suspicious. That EIN listing will then be used to identify all tax returns that have income reported using that particular EIN. If a return is identified as using a suspicious EIN to report income, the IRS will then send a letter to the real taxpayer informing them of the fraudulent activity. 

Suspicious “Red Flag” Tax Scenarios for Taxpayers

If the IRS suspects tax-related identity theft, they will report it to the taxpayer immediately. But unfortunately, they won’t catch 100% of cases. Here are a few scenarios that you should always be wary of in order to protect yourself from ID theft. 

• Questionable items on your tax account transcript
• IRS notice for underreported income or fictitious employees
• Unusual delays in your tax refund
• E-file rejection indicating a duplicate filing
• Letter from the IRS indicating balance due, refund offset, or collection actions taken – particularly if no return was file or no refund was received
• Personal information compromised (home or office invasion, wallet or purse stolen)

Keep in mind that ID thieves will often take advantage of children, the elderly, or even deceased individuals – so be sure to keep an eye out for the whole family. 

Reporting Tax-Related ID Theft

If you suspect identity theft, be sure to take action immediately by calling the Identity Protection Specialized Unit (IPSU) at 1-800-908-4490. If you are unable to reach the IRS promptly by phone, you should prepare and submit form 14039 with supporting documentation and mail or fax it accordingly. 

If all else fails, you can contact the Taxpayer Advocate Service (TAS) by visiting a local office or calling national TAS at 1-877-777-4778. 

In some cases, you may receive a letter from the IRS to report suspected theft. In such an instance, contact the phone number listed on the notice and follow instructions to verify your identity. 

Remember, if you ever have any questions about your taxes, we are only a phone call away. Be sure to browse our services page and fill out the form for a free consultation. Or give us a call at 844-841-9857!