Identity theft is a fact of life. Clients who are victimized by identity theft are likely to be on the lookout for unauthorized credit card charges or erosion of their credit scores. The client’s tax records can also be at risk.
In one common scheme, an identity thief will use a stolen Social Security number (SSN) to file a forged tax return claiming a fraudulent refund early in the filing season. The real taxpayer may not be aware that this has happened until the taxpayer files a legitimate return later in the season and discovers that two returns have been filed using the taxpayer’s SSN. In another scheme, an identity thief may use a stolen SSN to get a job. When wages from the employer are reported to the IRS using the taxpayer’s SSN, but are not shown on the taxpayer’s return, the taxpayer will receive an underreporting notice.
Identity theft should be suspected if a client receives a letter or notice from the IRS indicating that:
- more than one tax return was filed under the client’s SSN;
- a balance due, refund offset or collection action has begun for a year the client did not file a return; or
- IRS records show the client received wages from an unknown employer.
Bear in mind that the IRS does not contact taxpayers by email or other electronic communications, such as text messages or social media. A client who receives an email or other communication purporting to be from the IRS, should forward it to the IRS at email@example.com.
What to do. If a client receives a suspect notice, respond immediately to the name and number printed on the notice or letter. The client will need to complete Form 14039, Identity Theft Affidavit, to explain the situation. If that doesn’t resolve the problem, contact the IRS Identity Protection Specialized Unit, toll-free at 800-908-4490.
Once a case of identity theft is resolved, the IRS will issue an Identity Protection PIN (IP PIN) to the identity theft victim for use in filing future returns. An IP PIN is a unique six-digit number that verifies that the taxpayer is the rightful filer of the return. Under a pilot program, any taxpayer in Florida, Georgia and the District of Columbia can obtain an IP PIN, regardless of whether the taxpayer has been the victim of identity theft. In some cases, the IRS may contact a taxpayer to “opt in” for an IP PIN.
Under current rules, a taxpayer can’t “opt out” of the IP PIN program. A taxpayer must use the IP PIN to confirm identity on all future federal tax returns. An e-filed return with a missing or incorrect IP PIN, will be rejected. Filing a paper return with a missing or incorrect IP PIN will delay processing.
Proactive protection. You may want to alert your clients to these suggestions from the IRS for minimizing the chances of becoming an identity theft victim:
- Don’t carry your Social Security card or any document containing your SSN.
- Don’t give businesses your SSN just because they ask; question why it is needed and how it will be used.
- Protect your financial information.
- Check your credit reports at least every 12 months.
- Secure your personal information at home.
In addition, encourage your clients to protect their personal computers by installing firewalls, anti-spam/virus software, updated security patches, and new passwords for internet accounts. And, don’t give personal information over the phone, through the mail, or on the internet unless you have initiated the contact and are sure you know who is asking.
Your office can help by marking out Social Security numbers and bank account information when providing clients with file copies of their returns. In addition, caution clients not to carelessly discard copies of old tax returns or W-2 forms, even if they no longer need to be retained for tax purposes. A law change made by the Protecting Americans From Tax Hikes (PATH) Act of 2015 permits the IRS to authorize truncated SSNs on W-2 forms. However, older forms in your clients’ files were required to contain complete SSNs.
Employer assistance. Employment records are, of course, chock-full of personal identifying information about employees. In the event of a security breach or even in advance of a breach, an employer may wish to provide identity theft protection for employees. The IRS has announced that it will not assert that an employee must include in gross income the value of identity protection services provided by an employer. Moreover, the IRS will not require an employer providing identity theft protection services to its employees to include the value of the services in the employee’s income or to report the amounts on employee’s W-2 forms.
Editor’s note: Read more about security and ID theft protection in the ProConnect™ Tax Pro Center article “New IRS Identity Authentication and ID Theft Protection Guidelines.”