Tax-related identity theft is a continuing problem, although the IRS and taxpayers have gotten much better at combating it in the last few years. In the past, it has been confusing for taxpayers to figure out what to do when their returns are rejected or when the IRS notifies them that someone attempted to file their return. Many taxpayers also wonder if they need to get an identity theft PIN even if they have not had a problem.
Now, the IRS has released revised, clear instructions on what to do in different scenarios and on how to protect yourself from tax identity theft in advance. The instructions differ depending on whether the IRS identifies the possible identity theft or the taxpayer identifies the identity theft.
The IRS has identified three types of identity theft:
- Suspicious attempted filing. The IRS identifies a suspicious attempt to file a return and notifies the taxpayer that it will not process the return until the taxpayer responds.
- Fraudulent tax filings. The taxpayer tries to file a return, but the attempt is rejected because someone has already filed using the taxpayer’s or a dependent’s social security number.
- Non-tax identity theft. When someone uses a taxpayer’s personal information to open credit cards, obtain mortgages, buy a car, or open other accounts without their knowledge, not involving tax filings.
For the third type of identity theft, non-tax identity theft, there is no need to report the theft to the IRS. However, the agency suggests that victims be proactive and get an Identity Protection PIN by visiting IRS.gov/getanippin to prevent fraudulent tax filings before they happen. (More detailed information on getting an IP PIN is provided below.) Also, taxpayers should report the incident to other government authorities, credit bureaus and financial institutions.
IRS-Identified Suspicious Filings
When the IRS identifies a suspicious tax return based on its processing filters and pulls the suspicious return for review, it will notify the taxpayer under its Taxpayer Protection Program procedures. The taxpayer may receive one of three different letters from the IRS.
- Letter 5071C asks them to use an online tool to verify their identity and tell the IRS if they filed the return in question.
- Letter 4883C, asks the taxpayer to call the IRS to verify their identity and tell the IRS if they filed the return.
- Letter 5747C is for those who have been a victim of a data breach. This letter asks the taxpayer to verify their identity in person at a Taxpayer Assistance Center.
In the letters, the IRS will ask you to verify your identity using its online verification procedure. The letters also will identify the tax year and the type of form that someone attempted to fraudulently file. If you receive any of these letters, follow the instructions in the letter to work with the IRS and resolve the problem. You also should notify your tax advisor, who can help you through the process.
Taxpayer-Identified Fraudulent Filings
If taxpayers suspect they are a victim of tax identity theft, they should notify the IRS promptly by filing a Form 14030, Identity Theft Affidavit. The form should be attached to a paper return. The IRS will assign the case to their Identity Theft Victim Assistance organization where it will be researched and resolved by an employee with specialized identity theft training. It can take up to 260 days for the IRS to resolve the problem. The IRS will give the taxpayer an identity theft, six-digit PIN that will be changed annually.
Here are possible signs of tax-related identity theft that trigger the Affidavit process:
- A taxpayer cannot e-file their tax return because of a duplicate tax return filed using their Social Security number.
- A taxpayer cannot e-file because a dependent’s Social Security number or ITIN was already used by someone on another return without the taxpayer’s knowledge or permission.
- A taxpayer receives a tax transcript in the mail they did not request.
- A taxpayer receives a notice from a tax preparation software company confirming that someone created an online account in their name.
- A taxpayer receives a notice from their tax preparation software company that their existing online account was accessed or disabled by someone else.
- A taxpayer receives an IRS notice informing them that they owe additional tax, or their refund was offset to a balance due, or that they have had collection actions taken against them for a year they did not earn any income or file a tax return.
- The IRS sends a taxpayer a notice indicating that the taxpayer received wages or other income from an employer the taxpayer did not work for.
- The taxpayer was assigned an Employer Identification Number (EIN), but they did not request or apply for an EIN.
If any of the above conditions apply, the taxpayer should complete and submit the affidavit to the IRS.
Protect Yourself in Advance with an IP PIN
You can protect yourself from fraudulent tax filings before something happens by getting an Identity Protection PIN (IP PIN) from the IRS. The IP PIN is a six-digit number that prevents someone else from filing a tax return using your Social Security number or Individual Taxpayer Identification Number. The IP PIN is known only to you and the IRS. It helps verify your identity when you file electronic or paper tax returns.
If you are a confirmed victim of tax identity theft, and the IRS has resolved the issue, the agency will mail you a new IP PIN each year.
To get an IP PIN yourself:
- You must pass an identity verification process, either online or at an IRS Taxpayer Assistance Center.
- Spouses and dependents are eligible for an IP PIN if they also pass the identity verification process.
Safeguard Your PIN
The IRS has established a multi-prong approach to safeguarding your tax identity. A best practice would be to get an IP PIN in advance. There is one key point to remember, though. Make sure you put your PIN information in a safe place and in a place you can find it later. One of the biggest problems taxpayers have is losing or forgetting their PIN. When this happens, the IRS has procedures to retrieve your current PIN or issue you a new one. The problem is, this process could take a while, so make sure you have your PIN well in advance of any filing deadlines.