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Blog

The IRS and Identity Theft

Judy Lynn, CPA, MST

June 17, 2015

Preparation and payment of income taxes are an unpleasant process for many. The tasks can be further aggravated by IRS notification of a rejected return due to possible identity theft. The refusal of the IRS to accept the return is a short statement indicating the social security number of the taxpayer has been used on a previously accepted electronic file. The most likely possibility for the rejection is that someone purposely used the taxpayer’s social security number to file a false return and obtain a refund. An identity thief will use the stolen identification number to attempt to get a fraudulent refund early in the filing season. The first time a taxpayer may become aware of this is when the electronic file of his or her tax return is rejected by the IRS.

The taxpayer’s only option is to paper file the return. The IRS will most likely then take an extended period of time to process the documents delaying the payment of a refund. In addition to a tax return rejection, receiving a notice or letter from the IRS that you received wages from an employer that you did not work for, owe additional tax, have a refund offset, or have had collection actions taken against you for a year that you did not file a tax return are all indications that identity theft may have occurred.

Your best response is to follow IRS suggested procedures:

  • If you receive IRS correspondence with any of the above indications, call the IRS phone number on the letter.
  • Complete or have your tax professional complete Form 14039, Identity Theft Affidavit. Check the box to indicate identity theft as the reason behind the notice, and submit the form with at least one of the following: photocopy of a driver’s license, passport, Social Security card, or government-issued ID card.
  • Paper file your taxes with Form 14039 attached.
  • Pay any amounts due with your tax return.
  • Contact one of the three major credit bureaus and inform them of possible fraud:
  • Check your Social Security Administration earnings statement annually. This may be done online at www.ssa.gov.
  • Contact your financial institutions to ensure that your accounts have not been tampered with, or that new accounts have not been created.
  • File a report with the local police.
  • File a complaint with the Federal Trade Commission at www.identitytheft.gov.

While it is important to pay any amounts due the IRS, be aware that it may take up to six months to receive a refund owed to you. The extra time allows the IRS to properly investigate and come to the correct solution on your behalf. Quite often at this point there is misdirected anger at the IRS, rather than at the perpetrator of the fraud. The IRS, unfortunately, is the messenger that happens to be the first to inform you that something may be amiss.

Generally, within six months a response will be received from the IRS acknowledging identity theft and if a refund is due, you will finally receive it. The IRS will not provide any specifics as to what might have happened to trigger the rejection and/or identity theft determination. If you do not hear from the IRS within 180 days of filing Form 14039, contact the Identity Protection Specialized Unit at 1-800-908-4490.

Judy Lynn, CPA, MST is with Caufield & Flood in Crystal Lake. She can be reached at 815-455-9538 or via e-mail at JudyL@cfcpas.com or through the website CFCPAS.com.

   

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