The month of January is often the most corrupt period of the year when it comes to identity theft, as countless fraudulent tax returns are filed on unsuspecting taxpayers. The IRS has reported a whopping $21 billion in fraudulent activity, up from $6.5 billion two years ago. Part of the reason for the significant spike is an outdated detection system which has a slow process for implementing improvements. This, along with federal budgetary and legal constraints, has allowed thieves to thrive and obtain cash from filing fraudulent tax returns.
IRS data shows there were 787,000 confirmed number of fraudulent tax returns that made it into the agency’s processing systems in 2016; a decrease from the previous year, but significant nonetheless.
For the 2017 tax-filing season, the IRS is introducing new safeguards focusing on “trusted customer” features ensuring the authenticity of both the taxpayer and the tax return. These added features will include 37 new data elements transmitted by those involved in the tax preparation industry, as well as a plan to add verification codes on millions of additional W-2 tax return forms. In addition, the IRS is planning to launch an Information Sharing and Analysis Center to deliver earlier warnings of emerging identity theft issues and tax fraud schemes.
Signs you may be a victim of tax return identity theft include the following:
- You attempt to electronically file your return and it is rejected. You may receive a message indicating a return has already been filed using your social security number. In this case, you will want to take immediate action. Complete an Identity Theft Affidavit (IRS Form 14039) and mail it to the IRS.
- You received a letter from the IRS requesting information about a return bearing your name and identification number.
- You receive income tax-related documents from an unknown employer. This may imply a fraudulent W-2 or 1099 statement was prepared using your personal information.
- You receive a tax refund you did not request. The first thing you should do is compare it to your valid return. The IRS may have inadvertently refunded an overpayment that should have been applied to the following year. Or, if the amount does not match up correctly, a fraudulent return may have been filed using your name and identification number.
- You receive other unanticipated materials from the IRS, such as prepaid debit cards or transcripts of tax returns you did not request. This could imply someone is attempting to gain access to your information.
Over the years, thieves have devised many schemes to obtain the personal information of taxpayers. One thing to keep in mind is the IRS will typically contact a taxpayer via a mailed letter. A telephone or email message should always raise suspicion, as it may likely will be a thief attempting to gather personal information.
If it has been determined identity theft has occurred, you should promptly contact the IRS as soon as possible. An additional procedure the IRS will undertake will be to issue an Identity Protection PIN. This is a unique personal identifier that must be included on your tax return when it is filed. This process will aid in the prevention of future fraudulent actions involving your information. As thieves continue to develop newer and sophisticated schemes, be sure to keep your personal tax information private. Personal identification numbers and income tax information should only be provided to others when absolutely necessary.
For more information on this topic or tax preparation questions you may have, contact your Smith Schafer professional today.