← Personal Tax Strategies

How to Avoid Becoming a Victim of ID Theft and Tax Refund Fraud

Many of us use tax professionals and services to fill out and file annual income tax returns, but the last person you want doing it for you is an identity thief. Identity theft is one of the fastest growing crimes nationwide and tax refund fraud is one of the biggest challenges facing the IRS. Tax time provides a perfect opportunity for criminals to use your identity to file a fraudulent tax return and steal any refund you were expecting.

Fortunately, the IRS has become much savvier about spotting and preventing bogus returns. They do so by looking for irregularities using methods that can also flag mistakes, so don’t panic and think the worst if you are contacted by the IRS with a question about your return. If it looks like you may be a victim of tax fraud, there are steps you will take with the IRS to remedy the situation and stop the fraudulent return before it is processed or goes any further.

Ways to protect yourself from identity theft.

What Are the Red Flags for Tax Refund Fraud?

You should be alert to possible tax refund fraud if you receive a letter from the IRS stating that:

  • More than one tax return was filed using your social security number
  • You owe additional tax, have been subject to a refund offset or have had collection actions taken against you for a year you did not file a tax return
  • IRS records indicate you received wages from unknown employers

How Will the IRS Contact Me if They Suspect Identity Theft?

The IRS will not contact you by threatening phone calls advising you of a car waiting to whisk you to jail. The IRS will almost always contact you with a letter through the U.S. Postal Service. They will never contact you by email and only very rarely by phone (never give out any personal information if you did not initiate the call). You will receive Letter 4883C or 5071C, which are the tax forms used to verify your identity or clear up mistakes or typos on your return. When you receive the letter, it means the IRS has halted the return from being processed. The letter will direct you to verify information through a web address, a phone number or an appointment in person. It will also inform you of the specific information and documents you need to verify your identity and move the case forward.

What Happens if I Don’t Respond to the IRS in Time?

If you don’t respond to the letter within 30 days, the IRS will assume your return was fraudulently filed and reject it. In that case, you will probably need to make an appointment at a Taxpayer Assistance Center and provide the necessary documents and information to verify your return. Once that happens, the IRS can proceed with processing your return and any refund you may be due.

What Documents Do I Need to Verify My Return?

The documentation you need may depend on your particular situation. The letter you receive will state the information and documents you need to verify your return. Be aware that the IRS will not be able to give you any information regarding your return. In general, you will need a copy of your prior-year tax return as well as any supporting documentation, such as W-2s, 1099s, 1040 Schedule Cs or Fs. If you are required to appear in person, you will also need two forms of identification, including a government-issued ID. Make sure you bring everything with you to the Taxpayer Assistance Center so you won’t have to deal with the frustration of making a second appointment.

What Happens If There Was No Identity Theft?

If the return proves to be yours and everything on it is correct, the issue will be considered resolved and your return will be processed in approximately two to three weeks, though it could take up to nine. If it turns out the problem was a mistake you made, you may also be required to file an amended return, which could delay processing up to 16 weeks.

What Happens If I Was a Victim of Identity Theft?

The good news is that it won’t affect any refund you may be due. The bad news is that you must file a paper return since a fraudulent return was electronically filed using your name and social security number.

  • Typically, paper returns take six to eight weeks to process but because of the identity theft it could take up to nine.
  • The IRS will code your account to indicate your information was compromised.
  • In the future, you will most likely receive an identity protection pin number (IP PIN) that you will need to put on your tax return to file electronically. This number is unique and will change every year.
  • The IRS cannot prevent someone from using your information in other ways; they can only attempt to prevent someone from filing a fraudulent return.

If I’m a Prior Victim of Identity Theft, What Do I Do at Tax Time?

Contact the IRS immediately and let them know. Because your information has been lost or stolen, you will need to file a 14039 Identity Theft Affidavit. The IRS can then code your account and give you an IP PIN before someone tries to file using your information.

Who Do I Contact If My Identity Has Been Compromised?

According to the IRS.gov website, you should:

  • Contact one of the three major credit bureaus (Equifax, Experian or TransUnion) and place a fraud alert on your credit records.
  • Contact any financial institutions and close any financial or credit accounts that were opened without your permission or tampered with by identity thieves.
  • File a complaint with the FTC at identitytheft.gov

Steps to Take If Your Identity Is Stolen

Most of the time when someone files a fraudulent return using someone else's information they are only filing a federal tax return, but you can always notify your state tax office as well. Filing as early as you can also helps reduce the chance of someone using your identity to file a false return.

  • While the IRS cannot give you any information about the person that filed your return, you can ask which state it was filed in, so you can also contact that state tax office (if it is different from the state you reside in).
  • You can also file a police report with your local police. The IRS is sometimes able to work with the police to track down identity thieves.

How to Prevent Becoming a Victim of Identity Theft?

There are some preventative steps you can take both online and offline to lock down your information and help thwart identity theft:

  • Don’t carry your social security card or any documents that include your social security number.
  • Only give out your social security number or your Individual Taxpayer Identity Number (ITIN) when required by a reputable business or agency.
  • Protect all your financial information.
  • Check your credit report every 12 months.
  • Secure personal information in your home.

Protect your personal computers by using firewalls and anti-spam/virus software and change passwords frequently for your online accounts.

About the Author
Michael Atias

As an enrolled agent with the IRS with an MBA from Washington University in St. Louis, Michael brings a passion for educating and helping investors achieve their financial goals.


Wait! Before you go…

Your feedback is valuable. We hope you can take a few moments to complete the survey, so we can improve our website.

Complete the Survey