PREVENTION AND DETECTION
The IRS uses various fraud-prevention measures and filters to stop the vast majority of invalid refunds. From 2011 through 2014, the IRS detected 19 million suspicious returns, prevented more than $63 billion in fraudulent refunds, and significantly reduced the time required to resolve an identity theft case.
In addition, the IRS substantially increased the number of filters they use to detect identity theft. Filters were first used to detect fraudulent returns in 2012. The use of filters has steadily grown over the past several years. From 2012 to 2013, the number of filters used increased from 11 to 80.75 In 2014 and 2015, the number of filters grew to 114 and 196, respectively. During 2014, the IRS rejected 338,807 e-filed returns and 15,915 paper-filed returns in an effort to prevent issuing fraudulent refunds.76
Note. For further details regarding identity theft and other tax scams encountered by the IRS during the 2015 filing season, the congressional testimony of Timothy P. Camus, Treasury Inspector General for Tax Administration (TIGTA) Deputy Inspector General for Investigations can be found at uofi.tax/15b4x1.
By late 2012, the IRS had more than 3,000 employees working on identity theft cases, which is more than twice the number of employees dedicated to this purpose in 2011. In addition, more than 35,000 employees who work with taxpayers were trained to recognize signs of identity theft and provide assistance to victims.77
IDENTITY-THEFT PREVENTION TIPS
There are many ways for a taxpayer to be vulnerable to identity theft. For example, a taxpayer’s stolen identification may be used to prepare and file a fraudulent tax return that shows a refund. The thief’s account information may then be used to obtain the refund. This may serve to delay the bona fide refund to which the victim is entitled. In recent years, the IRS has taken several steps to increase its ability to detect fraud before refunds are issued. Those improvements include the following.78
- Deploying more than 100 filters
- Limiting direct deposit
- Locking deceased taxpayers’ accounts
- Improving cooperation with local law enforcement
- Working with state departments of corrections to curtail refund fraud by prisoners
- Partnering with financial institutions and software developers
- Working with the prepaid access card industry
There are several steps a taxpayer can take to prevent identity theft. These include the following.
- Social security cards and other documents with a social security number (SSN) or individual taxpayer identification number (ITIN) should not be carried in the taxpayer’s wallet or purse. These should be stored in a safe place at home.
- An SSN or ITIN should not be provided to a business or other party unless absolutely necessary.
- Confidential financial and other personal information should be protected and access to this information should be limited by using physical locks, computer passwords, or other security measures.
- Credit reports should be reviewed annually.
- Personal computers should be protected using firewalls, anti-spam and anti-virus software, updated security patches, and passwords for online accounts should be regularly changed.
- Personal information should only be provided by phone, fax, or Internet if it is given to a known party.
Note. If a taxpayer believes they are at risk of becoming an identity theft victim because of lost or stolen personal information, they may contact the IRS Identity Protection Specialized Unit at 800-908-4490. Further preventative steps may be found at uofi.tax/15b4x2
SIGNS OF TAX IDENTITY THEFT
There are signs that may alert a taxpayer that they are a victim of identity theft. These include the following.
- The taxpayer discovers that more than one tax return for them was filed with the IRS.
- The taxpayer discovers there is a balance due, refund offset, or collection action taken against them for a year for which they did not file a tax return.
- IRS records indicate the taxpayer received more wages than actually received.
- The taxpayer’s state or federal benefits were reduced or canceled because the agency received information about an income change.
RESOLVING TAX IDENTITY THEFT
Tax returns must continue to be timely filed even during the period when the IRS is resolving an identity theft case for the taxpayer. Any return that was the subject of identity theft must be filed in paper form. Preparers should attach the following items to these paper-filed returns.79
- A copy of the e-file rejection notice (typically provided by the preparer’s software)
- Form 8948, Preparer Explanation for Not Filing Electronically, indicating why the return is not being e-filed (The e-file rejection code should be noted, along with an explanation that the taxpayer is a possible identity theft victim.)
- Form 14039, Identity Theft Affidavit
With assistance or more information of protecting yourself from Identity Theft or help fixing Identity Theft Issues contact Jerry Jones, CPA 775.828.0767
Content from IRS.gov
75. Detection Has Improved; However, Identity Theft Continues to Result in Billions of Dollars in Potentially Fraudulent Refunds. Sep. 30, 2013. Treasury Inspector General for Tax Administration. Accessed on Aug. 17, 2015. Note. For further details regarding identity theft and other tax scams encountered by the IRS during the 2015 filing season, the congressional testimony of Timothy P. Camus, Treasury Inspector General for Tax Administration (TIGTA) Deputy Inspector General for Investigations can be found at uofi.tax/15b4x1.
76. Hearing Before the Committee on Finance, United States Senate. Mar. 12, 2015. Treasury Inspector General for Tax Administration Accessed on Aug. 17, 2015.
77. IRS Combats Identity Theft and Refund Fraud on Many Fronts. Oct. 28, 2014. IRS. Accessed on Aug. 20, 2015.