Identity Theft and the IRS

Dear Readers,

As many of you are aware, identity theft thieves have had extraordinary success in using innocent taxpayer’s personal information to get themselves a big fat cash refund from the IRS.

What typically happens – Your identity (name, address and social security number) is stolen.  The criminals file an electronic tax return EARLY on in the filing season. The financial information that is used is most likely fictitious, but will show that withholdings exceed the tax liability, and thus generate a refund.  The refund is deposited to an account like a cash card.

You find out by one of two ways.  You attempt to file your return electronically only to learn that it has already been filed, and /or the IRS issues you a very disturbing tax notice.

When a criminal steals your identity and uses it to file a fraudulent tax return, it hurts you, it hurts the U.S. Taxpayers, and erodes the confidence of the taxpaying public.

The U.S. government is aware of what is happening.  To the credit of the Government Accounting Office and the Treasury Inspector General for Tax Administration; audits have been conducted and the reports have been issued fully and timely disclosing the problems to the American public.

Why has the criminal element been successful?  Very simply, the IRS moves without the ball.  The IRS does not have the information uploaded and accessible to them to make a determination in real time regarding if the return is being filed by a criminal or the actual taxpayer.

It is very disturbing to realize that in the 2011 tax year, the inspector general reported that 5.2 billion dollars was paid to criminals seeking refunds from the IRS, and for the 2012 Fiscal year, the IRS’ operating budget was 12.5 million. Simple division tells us that the IRS issued monies to criminals of almost 42 percent of their operating budget.

The recommendations made by the GAO and the Inspector General, are straight forward and obvious.  To summarize the recommendations, the IRS simply needs more of the legitimate taxpayer’s information at the very beginning of the filing season.  The Washington Post did a great article on this subject see a great article written by Josh Hicks, September 23, 2014 entitled Identity theft cost the IRS $5 billion last year. Here’s what Congress can do.

That being said, the problems associated with the way the IRS issues refunds will not be fixed for the 2014 tax year.  So we can expect that more fraud will occur starting in January 2015.

If we concede the following points –

#1) Criminals are ready, willing, and able to used stolen identities for their gain in 2015.

#2) The IRS is not going to be able to stop 100 percent of identity theft tax returns from being processed and will continue to issue erroneous refunds .

#3) Law abiding citizens will have their lives turned upside down.

The best defense is a good offense. This is what you must do!

File as early as possible. You literally have to beat the criminal to the task.  You may be able to efile as early as January 23, 2015.  Push to get your information together as soon as possible, and be the first in line at your tax preparer’s office.

But, it does not stop with you.  It is my recommendation to efile for your children even though they may not have a tax obligation; same applies to your aging relatives.

Why am I recommending this?  Children under the ages of 18 are the most victimized members of our society in terms of identity theft.

What you should do if it happens to you?

If you go to efile your return and you are blocked due to the fact that a return has been filed under your social security number, you are most likely a victim of Identity theft.

My best advice is

# 1 Have your income tax preparer print out a paper version of your return and take this directly to the IRS field office nearest you, and file it in person.

#2 Have your tax preparer help you prepare IRS Form 14039 Identity Theft Affidavit. Insist on sitting with an IRS field agent and explain your situation, and have the agent note your file.

#3 Be certain to obtain a date stamped copy of your return.  Also bring your driver’s license with you.  Write down the Agent’s badge number.  Revisit the IRS periodically and find out the status of your matter.

Now for the Legal Part

  • IRS Circular 230 Disclosure: Pursuant to Treasury Regulations, any tax advice contained in this communication (including any attachments) are not intended or written to be used, and cannot be used or relied upon by you or any other person, for the purpose of (i) avoiding penalties under Internal Revenue Code or (ii) promoting, marketing or recommending to any other part tax advice addressed herein.