Identity theft has become one of the fasted growing crimes in America. The Federal Trade Commission has found that 9.9 million American fall victim to identity theft every year. Many of us have personal experience being victims of identity theft. Last fall, my car was broken into and my purse, containing my driver’s license, credit cards, etc. was stolen. Not only was I scared for the safety of myself and my family, but I was now faced with significant financial concerns as the criminals attempted to purchase various items under my name.
Preventing the exploitation of my name and credit became an arduous experience. Luckily, I was able to place the appropriate alerts in time to cut off the situation before it spiraled out of control. Nevertheless, identity theft continues to harm our finances and economy. As a result, this month’s blog will focus on the tax implications of identity theft and other scams. I will also cover what can be done to protect yourself from becoming another victim.
Identity Theft Used for Tax Returns
Most of us know that, in case of identity theft, we must contact the credit bureaus, cancel credit cards, and notify the bank to possibly close accounts. Some of us will also contact the social security office to put alerts in their databases. However, those remedies may still not be effective in preventing one very common fraud perpetuated by identity thieves – the use of stolen information to file tax returns and claim fraudulent refunds.
According to Forbes, the IRS has paid over $5.8 billion in fraudulent tax refunds. The Federal Trade Commission also estimates that 47% of identity theft crime relates to filing of fraudulent tax returns. Often times, a taxpayer is not even aware that their identity has been compromised until they try to electronically file their tax returns and the tax return is rejected because a return was already filed under the same name and social security number.
What to Do If Your Identity Is Stolen
We at Singer Burke have helped numerous clients deal with this difficult and unpleasant situation by taking a proactive and assertive approach. We generally recommend filing a paper copy of your tax returns along with Identity Theft Affidavit Forms, IRS Form 14039 and FTB Form 3552. Unfortunately, the burden of proof is on the victim. Thus, it is required to provide a copy of your passport or driver’s license to verify your identity during this process. We also recommend submitting a copy of the police report, if one was filed.
In response, the IRS will place alerts on your social security number. You will also be assigned a unique 6-digit pin number that must be used on all future tax filings. Additionally, going forward, you may receive notices from the IRS asking you to verify your identity before they will issue refunds.
Phone & E-mail Scams
Another threat which has greatly increased over the last three years pertains to fraudulent phone and e-mail correspondence. Many of us have heard of people or even personally experienced receiving a threatening phone call from a person claiming to be working with the IRS. Usually, the scam artist will aggressively insist that your taxes are delinquent, threaten police arrest, deportation or lawsuit. Unless, of course, you issue payment immediately.
Some schemes involve an email allegedly from the IRS which states that you are due a large refund and you can claim it if you provide certain information, including bank account number, social security number, etc. Since 2013, the Treasury Inspector General has reported that their office has received roughly 896,000 complaints regarding these type of hoaxes. Additionally, the Treasury Inspector General has confirmed over 5,000 victims who have collectively paid over $26.5 million as a result of these scams.
At Singer Burke, we continuously look out for our client’s best interests. As such, we stress significant caution when dealing with any communication from the IRS which appears suspicious. We have reassured numerous clients to ignore such threats and phone calls. Please be aware that the IRS will never unexpectedly contact you by phone or email. The IRS will always send correspondence by mail only.
Take Proactive Steps to Keep Your Identity Safe
You must be alert and always protect your personal data. Do not routinely carry your social security card around, and make sure you do not respond to suspicious emails and phone calls.
Ultimately, if you are ever unsure of a tax issue or IRS communication, please do not hesitate to contact Singer Burke. We are happy to provide advice and counsel on these tax issues to help defend you from these predators!