What to Do If Someone Files a Fraudulent Tax Return in Your Name

Q:  This is a message that you don’t want to hear from the IRS: “Someone has already received your tax refund.” Right?
A:  Yes, more than 237,500 taxpayers filed affidavits with the IRS in the first nine months of 2016 reporting that they had been victims of identity theft, according to the agency. During that same period, the IRS stopped 787,000 identity theft returns that had sought more than $4 billion in refunds.

Q:  How do the fraudsters file fraudulent tax returns?
A:  Scammers can steal taxpayers’ identity in a variety of ways:

  1. data breaches at:
    1. retail stores
    2. medical facilities
    3. the IRS itself
    4. theft of paper mail.
  2. Scams often involve a web of thieves, with one group stealing identities and another group filing bogus tax returns.

Q:  How do tax payers find out that someone has filed fraudulently on their return?
A:   Scammers usually file returns as soon as tax filing opens, hoping to receive refunds before the real taxpayers report their fraud.

  1. If the IRS flags problems with your return, you’ll get a letter before any refund is issued, which gives you the opportunity to tag the initial return as fraudulent and go on and file normally.
  2. But if the IRS doesn’t catch the fraudulent return, you won’t find out about it until you file your return electronically and get a message that your return has already been filed.
  3. If you file a paper return, you’ll receive a letter from the IRS informing you a return has already been filed in your name.
  4. If the scammer gets your refund, you may have a long wait before you see any money yourself. It may take six months or longer for the IRS to agree that it sent someone else your refund and actually send the money to you.

Q:   What should someone do if they receive that dreaded notification from the IRS?
A:  Here are eight things to do if someone has filed a fraudulent tax return in your name or you have recently been a victim of ID theft and fear it might lead to a fraudulent tax return:

  1. File Form 14039. If you receive a letter from the IRS or otherwise suspect you’re the victim of ID theft, you should fill out and mail this form, called Identity Theft Affidavit, to the IRS with a copy of your driver’s license, Social Security card or passport.
  1. Put a credit freeze on your accounts. Call the three major credit bureaus – Experian, TransUnion and Equifax – and ask that your credit be frozen. Now no one can request new credit in your name. Keep in mind that if you apply for a new cellphone or utility account, or otherwise agree to a credit check, you’ll have to lift the freeze long enough for the check to be done.
  1. Check your credit card accounts. Make sure no one has charged anything to your credit card accounts, changed your address or otherwise done anything you did not authorize. Consider changing passwords to online accounts and deleting your credit card information from online shopping sites.
  1. File a police report. Your fraud may be part of a larger local fraud scheme. The more information the police have, the better chance they have of cracking the criminal enterprise. Depending on the size of your local police department, there may even be a division that deals with financial crimes or ID theft.
  1. File a report with the Federal Trade Commission. The FTC also has helpful information on its website for taxpayers who face this situation.
  1. Watch for scams. The IRS will not contact you via email or phone to ask for financial information. Don’t give out any personal information to phone callers and don’t click on links in emails that purport to come from the IRS. Only respond to paper mail correspondence from the IRS.
  1. Get a PIN for tax filing. You can add an extra layer of protection to your tax filing if you use an IRS-provided personal identification number. You can request a PIN if the IRS has invited you to or if you filed your tax return from Georgia, Florida or the District of Columbia. But once you get a PIN, you can’t file without it.
  1. Only work with reputable tax preparers. Tax preparers have been both victims and perpetrators of scams. If you hire someone else to do your taxes, hire someone with good references and experience. You can check whether preparers hold credentials recognized by the IRS.

Q:   What steps are being taken ahead of time to try to avoid more victims of tax return fraud?
A:  Both the IRS and some tax preparers are putting some requirements in place in hopes of heading off a fraudulent claim:

  1. In 2016, the IRS instituted new security measures for all online filing.
    There are new security requirements when you’re preparing your taxes online, especially when you sign in to your tax software account, to better protect your tax software account and personal information. Some states are requiring driver’s license numbers with returns, figuring that a thief who acquired a taxpayer’s Social Security number didn’t necessarily acquire his or her driver’s license number as well.In additions, the IRS has teamed up with state tax authorities, tax software developers, and major tax preparation chains on a security initiative in which they share information to deter identity thieves. As part of the initiative, the IRS, states and tax industry are sharing more than 20 new data elements on tax return submissions this tax season to help detect identity-theft related filings.
  1. Some tax software providers such as Turbo Tax are requiring their customers to have stronger passwords.
    They are also requiring multifactor authentication to log in, where access is granted after providing more than one piece of information to verify your identity.