Accountants Can Help Clients Victimized by Tax-Related ID Theft

Tax preparation experts can help their clients if they become victims of identity theft arising from their tax filings. First of all, it is important to know how tax-related identity theft is defined and discovered and how to report it if it is found.

The U.S. Internal Revenue Service (IRS) detects identity theft on filed tax returns by applying specific filters at the time of filing, which stop a questionable return from continuing with the process. If a return is stopped, the taxpayer receives a letter asking for ID verification or other information. However, there were 3.8 million suspicious returns in 2015, and 34 percent of them were false positives, meaning that one of three returns was incorrectly flagged and delayed, to the frustration of taxpayers.

The IRS also examines tax returns for fraud by reviewing EIN numbers. Suspicious numbers prompt examiners to perform extensive research to find the employer, and if that employer is found to be a fictitious business, the EIN is also considered suspicious. The IRS then sends a letter to the real taxpayer as notification of the situation. More than 6,000 EINs have been confirmed as suspicious.

Tax-related identity theft can also be discovered through suspicions of the taxpayer, who may find strange items on a tax account transcript, receive an IRS notice of underreported income, suffering an unusual delay in a refund, rejection of an e-filing that indicates a duplicate return filing, IRS acceptance of an original return as an amended return, a letter from the IRS indicating a balance is due or that collection actions have been brought against the taxpayer, and personal data compromised via a data breach or stolen purse/wallet.

Most victims of tax-related identity theft are children, elderly individuals, deceased persons, and individuals who are incarcerated. The people may not be obligated to file a return, so a return filed by a thief is the first one received by the IRS.

Immediate action should be taken to report suspected tax-related identity theft. If clients suspect they have been victimized, they should be counseled to contact the Identity Protection Specialized Unit (IPSU) at (800) 908-4490, and if they cannot reach a representative due to long hold times or disconnects, they should be told to prepare and submit Form 14039 with all required supporting documentation via mail or fax immediately. If communication problems continue, clients may contact the Taxpayer Advocate Service (TAS) by visiting their local office or calling National TAS at (877) 777-4778.

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