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By: Glenn Schanel, CPA
on March 28, 2018

According to the IRS, tax identity theft dropped by 40% in 2017 compared to 2016. That doesn’t mean you should reduce your vigilance in keeping your information secure. Here’s what you should know about tax identity theft, how to determine if it has happened, and what actions to take for recovery.

Tax identity theft happens when someone steals your social security number, uses it to file a tax return and receives a fraudulent refund. Unfortunately, if the thief has enough data to file a fraudulent tax return, they probably have enough information to wreak havoc on the rest of your financial life. That means that in addition to dealing with fraudulent tax filings, you need to take the same measures you would with any other case of identity theft.

How can you tell someone has stolen your tax identity?

The first sign is frequently an alert from the IRS that someone has already filed a tax return using your social security number.  Your electronically filed return may be rejected, or you may receive a letter from the IRS notifying you this has happened.

Another sign is receiving a notice from the IRS or other tax authorities that don’t make sense. You may receive a bill for additional taxes when you know you’ve paid in full. Or you might get a collection notice for a year that you didn’t file a tax return.

You may also be notified that your federal or state benefits are being reduced because your income is over the limit thanks to someone filing a return with fake information.

The IRS will not contact you about identity theft by phone or email. They always send a letter by mail. If someone calls or emails you about your account with the IRS, it’s a scam.

Early filing doesn’t solve everything

Let’s dispense with the myth that filing your tax return early takes care of everything. Getting your return in before the fraudster files just means that you’re preventing your refund from going astray. But if they have enough information to file a return, they probably have enough information to open credit cards in your name or to profit by selling that information on the Dark Web.

What should you do in case of tax identity theft?

Respond to any notices or letters from the IRS promptly. As with any notice from the IRS or state tax authority, please contact us so we can help you resolve the issue.

  1. Fill out Form 14039 Identity Theft Affidavit. We can help you with this. If your tax return is rejected from electronic filing, we’ll attach this form to a paper copy of your return and file by mail. The form can also be filed separately from your tax return if you receive a notice of fraudulent activity on your tax account.
  2. File a complaint with the FTC at gov.
  3. Contact one of the three credit reporting bureaus and put a fraud alert on your account. If you contact one, the others will also be notified.
  4. Contact your bank, credit card companies, investment advisor, and any other financial institutions to alert them.
  5. Check your credit report and close any accounts that aren’t yours.

Get an IP PIN from the IRS

If your tax identity has been compromised, you’ll receive a letter from the IRS inviting you to apply for an IP PIN. You can only get an IP PIN if the IRS invites you to get one. However, under a pilot program, the IRS is opening the process to anyone who filed a 2016 tax return in Florida, Georgia, or Washington, D.C. These areas have the highest rates of tax identity theft.

After you apply you’ll need to verify your identity either online or by phone. You might need your tax return from the year before and all the documents you used to file it.

Once you receive an IP PIN you’ll need to use it on your Federal tax return for all future years. If you leave it off the IRS will flag your return as a fraudulent return. IP PINs are good for one year, with a new IP PIN issued each year in late December or early January. If you haven’t received your new IP PIN, you can retrieve it by going online here.

Businesses can also be victims of tax identity theft

Fraudulent business tax returns can be filed if a thief obtains the EIN for your business, so protect it just as you do your social security number. Fraudsters can open business credit cards or lines of credit. They can order goods they can resell and charge it to the business owner. It is important to check the credit report for your business with the three major credit reporting bureaus plus Dunn & Bradstreet.

Schanel & Associates CPA understands the process of identifying and recovering from tax identity theft. Contact us today.

Resources to learn more:

Florida Office of the Attorney General

IRS Taxpayer Guide to Identity Theft

Identity Theft Resource Center

Do you think you may be the victim of identity theft?  Did you receive a letter from the IRS that says another tax return was filed under your social security number? Call our office at 561-277-3195 and we’ll help with the steps you need to take now!

Schanel & Associates is a CPA firm specializing in accounting, tax, business valuation and litigation support serving Palm Beach, Martin and St. Lucie Counties and beyond since 1993. Our CPAs and accounting professionals work with individuals, businesses, estates and trusts to provide everything you need under one roof. For more information, contact us today at 561-624-2118. Glenn Schanel is the founding Principal of Schanel and Associates. Glenn Schanel is a CPA with over three decades of experience helping people and organizations manage, make sense of and benefit from their finances. He oversees areas that include auditing, accounting, tax, business valuation, forensic accounting, litigation support and other consulting services to both business and individual clients. Todd Schanel has been a principal at Schanel & Associates since 2004, where he specializes in financial planning, tax planning and consulting services. He also serves as Founding Principal and Director of Investment Advisory Services at Core Wealth Management, our sister company, where he leads an accomplished professional team offering independent and objective financial advice to help clients achieve their financial goals. Todd has been a CFA Charterholder since 2005, and in 2007 he earned his Certified Financial Planner® designation and became a licensed CPA. In 2015, he earned the Certified Valuation Analyst (CVA) designation.

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