So, you try to file your tax returns, and to your utter dismay, you find out that someone has already filed their tax returns using your social security number. If you stumble upon these unfortunate circumstances, then you are a victim of tax identity theft – or, to be more specific, stolen identity refund fraud.
Nip the Evil in the Bud: Understand How Tax Identity Theft Works
Unlike traditional forms of identity theft, tax identity theft doesn’t solely target your tax returns but relies on a limited number of identifiers. Your social security number is a holy grail for identity thieves because that is your main government identification number.
Criminals can acquire your social security number in various ways. These include cyber attacks and data breaches involving former or current workers, stolen 1099 tax forms, and even through malware on your devices that are connected insecurely to public Wi-Fi.
After acquiring your social security number, the tax identity thief will file a tax return and use your personal information to their liking. They may exaggerate the numbers to ensure they receive significant tax returns. By the time you realize your victim status, you will be filing your legitimate tax return and dealing with IRS notices because of duplicate identification numbers.
If the Internal Revenue Service (IRS) smells something fishy, you will receive a mail that will include LETTER 5017C. You will then be asked to verify your identity. Keep in mind that the IRS only uses mail as a means of communication with citizens. So if you get any threatening calls saying they are affiliated with the IRS, ignore them. However, if you are the recipient of a Letter 5017C, tread with caution.
Steps You Can Take if You Are a Victim of Tax Identity Theft
If you happen to be a tax identity theft victim, take the following actions immediately:
1. Get in Touch with the IRS
IRS has an Identity Protection Specialized Unit and you can contact them at 1-800-908-4490. You will need to fill out the IRS Theft Affidavit Form 14039. Once completed, this will alert the agency that your identity has been compromised. The form also asks if the complaint was about tax identity theft or some other forms of identity theft that might affect your tax returns.
2. Reach Out to the Federal Trade Commission (FTC)
Once you are done resolving things with the IRS, you can try contacting the Federal Trade Commission. In order to do this, you will need to fill a report with the agency that deals with identity theft. At this point, you will be reminded to fill the IRS 14039 form. Make sure you have additional documents that can help verify your identity.
3. Visit Your Local Police Department
Tax identity theft is a severe crime and can negatively impact your ability to obtain medical care, credit, or jobs, to name a few. After following the first two steps, head over to your local police department. But make sure you have a copy of the FTC Identity Theft Affidavit, any government-issued ID, and the IRS notice.
If the police department refuses to file your identity theft report for some reason, ask if it is possible to file a report under “miscellaneous incidents.” Make sure you are persistent about filing a police report for tax identity theft. Having a report on record can help ease the identity recovery process. You can also try visiting different police stations in case things don’t go your way.
4. Use Your Credit Report to Take Action
Contact your preferred credit bureau, be it Equifax, Experian, or TransUnion, and request them to attach an alert to your account. Once you have informed your credit bureau, they will notify the remaining bureaus about the alert. Also, make sure there are no abnormalities in the credit report. By abnormalities, we mean no previous instances of a compromised social security number. Another thing you can do is freeze the credit report so it isn’t accessible to anyone.
As a precautionary measure, always check the credit report for potential signs of fraudulent activities or other issues.
How to Prevent Tax Identity Theft?
Although preventing tax identity theft completely is not always possible, you can take a few steps to better safeguard your personal information.
- Never share your social security number with anyone and always keep it as private as possible.
- Keep your devices protected with proven security software and always lock your device when not in use.
- Don’t fall victim to scam phone calls and phishing emails. No one is allowed to request your social security number via phone calls or emails.
- Verify the legitimacy of every email, letter, or phone call by contacting the organization.
- Don’t delay filing your taxes. Not filing them early provides a smaller window of opportunity for tricksters to exploit your information.
Taking some precautions from your end can significantly reduce the chances of your personal information being leaked and your tax return being stolen.
Why Not Hire an Expert?
We know that being a victim of tax identity theft can be an unnerving experience.
When someone uses your identity to file returns, you can expect a lot of repercussions. For example, someone can secure a job using your identification number. This will lead to IRS receiving 1099 and W-2 forms that report income under your name. Paying closer attention to your tax account will ensure that nobody exploits your identity for their personal gains.
Unfortunately, tax identity theft is extremely prevalent, and people don’t give it proper attention.
Because of its prevalence, tax professionals are helping clients to deal with this issue. A good tax professional can easily identify all your tax-related issues and guide you towards restoring your IRS identity.
Learn more about tax laws here.