How Identity Theft Can Affect Your Taxes

July 15, 2021

Identity theft is a large and growing problem in America, with millions of Americans every year falling victim to this crime. Normally, the victim finds that their card details have been stolen, or a line of credit opened in their name, but sometimes your taxes can be affected as well. If you’re worried this might happen to you, then read on to find out exactly how your tax situation may be affected, and what to do about it.

How Identity Theft Can Affect Your Taxes

How do You Know You’re a Victim?

 In most cases, you might not find out that you’re a victim of a tax identity thief until you attempt to file your tax return and discover that the IRS has flagged the return as a duplicate, meaning that someone has already filed not only in your name but using your social security number.

You might also receive notices from the department of tax or the IRS stating that you owe tax for a year in which you were not required to file a tax return, or in some cases be denied a refund, as someone has already claimed it. It’s best to read through all correspondence from the IRs or the Tax Department as soon as you receive it to make certain that there’s nothing suspicious.

Fraudulent Tax Returns

The most common way that identity thieves operate is to first obtain your social security number, and your name and address, before using the stolen information to receive large refunds for falsified tax returns in your name. You may then receive alarming notices from the IRC informing you that you are subject to the various penalties incurred by the thief, possibly including garnishment of your wages, and in the worst cases a collection agency may have been contracted to recover the tax you supposedly “owe”.

This highlights the importance of keeping scrupulous and up-to-date tax records covering all the taxes that you have paid in the past and the circumstances in which you paid them. If you are certain that all the tax you owe has been paid in full, then it’s time to file a report with the IRS to let them know what’s going on.

Reporting the Theft of Your Identity

Luckily, there is a clear procedure for reporting suspected theft of identity to the IRS, and they are usually happy to help you protect your data. If your online application was rejected, then you’ll need to file your tax return by mail. You’ll also need to fill out and enclose a specific form, Form 14039, Identity Theft Affidavit, and sent them off to the IRS. Then, you simply need to wait for the IRS response.

Firstly, you should receive an acknowledgment that the IRS has received your affidavit within 30 days. It’s unusual, but you might be asked to prove your identity, and this usually means you’ll have to answer questions about your previous tax returns.  Once you’ve confirmed who you are, your case will be transferred to the Identity Theft Victims Assistant department, which will communicate the process of the case with you and work to issue you a refund if necessary.

What Happens Next?

The IRS will flag your account as being particularly at risk of fraudulent activity, letting them give extra scrutiny to any tax returns filed under your unique taxpayer identification number. This makes it more likely that any future attempts at fraudulent transactions on your account will be detected earlier, so you don’t end up in the same situation again. The IRS will notify you when the flag has been applied; it will remain on your account indefinitely.

By this stage, the IRS will have issued any refunds owed and canceled any bills, penalties, charges, or interest you may have incurred as a result of the fraudulent activity. They will have checked all other years that you filed a return for fraudulent activity as well and will resolve any issues with these before closing your case. You will receive a notice once the resolution process has been completed and your case has been closed.

How Long Will The Process Take?

The time the process takes can vary wildly depending on your individual circumstances, as well as the complexity of your case. The IRS officially takes between 120 and 180 days to process cases, but in reality, some taxpayers have found that it can take over a year in especially complex cases. It’s worth following up on your case periodically to ensure that it is being worked on.

Future Protections

Once the process is complete, you’ll be issued with a new number to use on your yearly tax return called an Identity Protection Personal Identification Number, or IP PIN. This is issued to past victims of identity theft to use when their tax returns are filed and is posted to you every December. It must be then used on your return identify from then on. It’s six digits, and at the time of writing, there’s currently no way to opt out of the program once you’re enrolled, although this might change in the future.

What Steps Should I Take in the Future?

Having already had your identity stolen, it’s understandable you’ll want to be sure it doesn’t happen again, even with the extra security measures. The crucial piece of information that thieves will be after is your social security number, so most preventative measures center around ensuring it stays safe. It’s important not to give it out to anyone unless it’s absolutely necessary for a legitimate reason. You shouldn’t normally have to give it to any business, and they won’t normally ask for it and don’t give it out over the phone unless you initiate the call and are certain who’s on the other end.

Try not to keep your social security card or other documents with your SSN number on it, keep them in a secure location in your home, otherwise losing your wallet, or having it stolen could put you at risk. It’s also worth checking all credit reports and other important documents for unusual activity. Make sure that your electronic devices are secure and that firewalls and antivirus software are in place and up to date.

Other Issues Arising From Tax Fraud

Being a victim of this crime may not just affect your tax situation: criminals may try to access credit cards or employment details, with details filed under your name. Employment-related theft of identity is a distinct possibility, so look out for unexpected IRS documents claiming you have earned wages from an employer you don’t work for, or stating they’ve received notice of undeclared income. There are a number of separate steps you might need to take if this is the case, but the IRS website offers detailed information on what to do.

No matter how many steps you take to protect your identity, there’s always a chance that your tax returns may have been interfered with. If you’re looking at a letter from the IRS and you’re not sure what to do, then call or contact Geaux Tax Resolution today, and you’ll soon be on your way to having any problem related to your taxes quickly and professionally resolved.