Unfortunately, identity theft has become far too common, especially at tax time. Once an identity thief has your social security number, chances are they will waste no time in filing a fraudulent return in hopes of getting a large tax refund. However, you probably won't be aware of this until you try filing your own tax return, only to have the IRS kick it back on the basis of being a duplicate return with the same social security number. If you ever find yourself to be a victim of tax return fraud, here are some critical steps you should take immediately.
Contact the IRS and FTC
As soon as you are aware you are a tax return fraud victim, contact both the IRS and the Federal Trade Commission. You will need Form 14039, the IRS Theft Affidavit Form, to contact the IRS Identity Protection Specialized Unit. Submitting this form alerts the IRS that your identity has been stolen and used for tax fraud. When you contact the FTC online, you will also fill out a form detailing the incident, and will probably be asked to provide a copy of your driver's license for identity verification.
File a Police Report
Since you are a crime victim, contact the police and file an identity theft report. When doing so, also have copies of forms you submitted to the IRS and FTC. As you go through the process of clearing your identity, having a police report on record will be extremely beneficial.
Let Your CPA Know What’s Happened
Give your CPA a call and let them know what’s happened. At the very least, they can be apprised of the situation and take further steps to secure your tax return information on their end. They will also be better prepared if the IRS contacts them directly for more information.
Contact Credit Bureaus
Make sure you contact at least one of the major credit bureaus to notify them of potential tax fraud being committed against you. Once you do this, a fraud alert will then be attached to your credit reports. Also, make sure you thoroughly check your credit reports to see if anything unusual shows up on them, which may indicate the identity thief is doing more than filing fraudulent tax returns. To play it safe, your CPA may recommend that you request a freeze on your credit reports, meaning that new lines of credit will not be made available to anyone until you approve a release. Upon realizing you are a victim of tax return fraud, constantly monitor your credit reports for suspicious activity.
State and Local Taxes
While you probably will be focused primarily on your federal tax returns, remember that tax return fraud may also be impacting your state and local taxes as well. After all, it is likely the identity thief is trying to use your social security number and other information to get as much free money as possible sent their way before moving on to another victim. Therefore, contact your local and state government agencies to notify them of the situation, and to also find out what steps you may need to take.
Contact Your Bank social security number and other important personal information, your bank account may also be at risk of being emptied. Remember that your bank account number may even be on your tax return document since you were due a refund. Rather than face an unexpected and unpleasant surprise, contact your bank as well as your credit card companies to alert them about what has happened. Upon doing so, your bank accounts and credit card accounts can be frozen if necessary.
Don't Panic
While it may be easier said than done under the circumstances you are facing, try not to panic once you know you are a victim of tax return fraud. Chances are, your CPA has dealt with these situations in the past, and thus can assist you in contacting various agencies and letting you know what to expect along the way. The IRS has a process for dealing with tax return fraud as well. You will not be penalized or held accountable, either.
Verify Everything
Now that tax return fraud has happened to you, don't assume lightning cannot strike twice. In fact, once an identity thief is initially successful, they may try it again at some point with your information. To prevent this, you can begin by verifying anything and everything of which you may be unsure. This will include phone calls, text messages, emails, and even letters sent through the mail. Remember, the IRS and other legitimate individuals and organizations will never ask you for personal information over the phone or in an email. The IRS will provide you with a PIN for when you file future tax returns, since you’ve already been targeted. Use this PIN or give it to your CPA for next year’s return. Each year, you will be given a new PIN.
File Your Taxes Early
While you may think tax return fraud takes place mostly with people who file their taxes early, the fact is the opposite is actually true. In most cases, identity thieves thrive in the later stages of tax filing season, since they know the influx of returns makes stealing identities easier. By meeting with your CPA early on to file your taxes, you give identity thieves a much smaller window of opportunity to commit their crimes.
The Problem Won't be Solved Overnight
Unfortunately, your tax return fraud problems won't get solved overnight. If you are lucky, it may take only a few weeks before everything gets back to normal concerning your taxes and finances. However, don't be surprised if it takes several months or even a year at a minimum before your life returns to normal. It may in fact take a year for the IRS to sort everything out. But eventually, any tax refund that is due will be in your hands.
If you thought that dealing with tax returns under normal conditions was stressful enough, it doesn’t begin to compare to being a victim of tax return fraud. However, having a qualified CPA on your side during the process will make everything go a lot more smoothly.