Protecting Yourself from Tax Return Identity Theft
Identity theft can take many forms, but tax refund theft is particularly insidious. An imposter gaining access to your Social Security number and filing a fraudulent return can create a financial and logistical nightmare.
According to the Taxpayer Advocate Service (TAS) at the IRS, hundreds of thousands of Americans fall victim to tax-related identity theft each year. Following the pandemic, the IRS saw a significant increase in these crimes, as fraudsters targeted pandemic-related benefits.
“Identity theft, in general, is very lucrative, and tax identity theft can be extremely lucrative,” said Eva Velasquez, CEO of the nonprofit Identity Theft Resource Center (ITRC).
Committing this crime has become easier due to widespread data breaches exposing personal information. As Velasquez explained, “All of your credentials are already out there; your data has been breached. Everything that’s needed to file a fraudulent tax return in your name is available for purchase. So, we have to employ additional protections.”
Combating Tax Refund Fraud
A simple but effective way to prevent tax identity theft is to request an Identity Protection PIN (IP PIN) from the IRS. This unique six-digit number prevents anyone else from using your Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN) to file a return in your name, acting as a safeguard against fraudulent activity.
As Velasquez stated, “Even if a thief has all the information about you…without that PIN, they cannot succeed.”
An IP PIN is now available to all taxpayers for free, taking less than a minute to obtain. You’ll need to create an IRS online account, and the PIN must be renewed annually.
Watch for Warning Signs
Amy Nofziger, director of victim support at the AARP Fraud Watch Network, advises to “Monitor your mail… That is your first signal that you might be a victim.” Other signs include a warning letter from the IRS indicating multiple returns filed with your SSN, or a notice that you didn’t declare all income from a company.
Additional alerts might involve the unauthorized creation of an online account in your name, or the assignment of an employee identification number you didn’t request.
If You Suspect Tax Refund Theft:
- File a Claim: File a claim with the IRS via their website. Be prepared for a lengthy process.
- Seek Guidance: Contact experts at the AARP Fraud Watch Network Hotline (877-908-3360) or the Identity Theft Resource Center (888-400-5530) for assistance.
Dealing with Delays
While awaiting your legitimate refund, the financial strain can be significant, particularly for those reliant on the refund for essential expenses. Carmen Aguiar, a CPA, described the experience as “very stressful and time-consuming.”
Delays can also lead to other tax issues, such as erroneous “balance due” notices. According to a TAS report, resolving Identity Theft Victim Assistance claims can take more than 22 months.
While the IRS is working to reduce these delays, National Taxpayer Advocate Erin Collins considers them “unconscionable.”
