In recent years, identity theft has mushroomed and during the filing season, tax-related identity theft is especially prevalent. Identity thieves typically file fraudulent returns early in the filing season, before unsuspecting taxpayers file their legitimate returns. Criminals gamble that the IRS will not detect the false return and will issue a fraudulent refund.
Filing early is strongly recommended, but enhanced identity theft prevention measures and security protocols will lengthen time frames for refund issuance. On February 17, 2016, the Illinois Department of Revenue announced that it is working with the IRS and other states’ revenue tax departments to protect taxpayers and does not anticipate releasing any individual income tax refunds between January 1, 2016 and March 1, 2016. Filing your return electronically and requesting direct deposit into your checking or savings account is still the fastest way to receive your refund.
Background
Tax-related identity theft occurs when criminals use stolen identification information to file a return claiming a fraudulent refund. According to the U.S. Department of Justice, tax-related identity theft is on the increase and is also becoming more organized. Tax-related identity theft is often perpetrated by criminal enterprises, involving multiple individuals.
In 2015, the IRS held several high-level meetings with state tax authorities and tax preparation software providers. These security summits focused on ways to improve cybersecurity and curb tax-related identity theft. All three sectors have agreed to share more information, where allowed by law, to combat tax-related identity theft. The IRS has made a number of upgrades to its return processing filters and taken other behind-the-scenes measures to flag fraudulent returns.
Identity validation for taxpayers using tax preparation software has been enhanced. These steps are intended to protect taxpayer accounts by creating security questions and device identity recognition, the IRS explained. All these actions for 2016, the IRS has explained, will serve as the baseline for additional improvements for the 2017 filing season.
Steps
The IRS has described the steps taxpayers should take if they suspect their identities have been stolen and a fraudulent return has been filed in their name:
- Taxpayers should contact the IRS and alert the agency that their identity has been stolen.
- Taxpayers should file a paper return if they are unable to e-file (for example, the fraudulent return was e-filed).
- Taxpayers should complete and file Form 14039, Identity Theft Affidavit, with their return.
After the taxpayer’s return and Form 14039 are received for processing by the IRS, the agency’s Identity Theft Victim Assistance (IDTVA) function will handle the case. This special unit will assess the scope of the issues to determine if the case affects one or more tax years as well as determining if there are other victims, who may be unknown to the taxpayer, listed on the fraudulent return. The IRS will mark the taxpayer’s account with an identity theft indicator and the taxpayer will receive an Identity Protection Personal Identification Number (IP PIN). According to the IRS, most tax-related identity theft cases are handled within 120 days but more complex cases may require additional time.
Verification of identity
Sometimes, the IRS may ask a taxpayer to verify his or her identity. This request is done by letter. The IRS explained that most verifications of identity can be done online or by telephoning the agency, but the IRS may request that an individual come in person to a Taxpayer Assistance Center to verify his or her identity.
If you have any questions about tax-related identity theft, please contact our office. If you believe your identity has been stolen or you have received a letter from the IRS asking you to verify your identity, please contact us immediately at (847) 267-9600. We can help you work with the IRS.