As you may be aware, identity theft is growing problem in today’s society. I’m sure you’ve heard stories about people who have had their social security numbers (SSN), bank account and credit card information stolen. Criminals use this information to rack up charges in bank accounts and on credit cards. It’s a very serious matter that frequently ruins the credit of the victim and takes a great deal of time and effort to resolve.
BUT did you know that identity theft has become a growing problem with your tax returns as well? It’s called stolen identity refund fraud or SIRF. Similar to any identity theft, a criminal steals key information about the victim. In this case the criminal is obtaining the individual’s name matched with his or her social security number. Once that is obtained, the criminal submits a false tax return in the name of the victim claiming a tax refund. Unfortunately, in many instances the refunds are issued.
The fraud is usually discovered when the individual files his or her own return and discovers that the IRS will not issue a refund because a return has already been filed under their social security number. If the individual filed the tax return before the criminal, it’s not a problem. The IRS will accept the first tax return filed. However, if the criminal files first and the individual second, the second tax return will be rejected, even if it is the correct one.
It can be very difficult for an individual to get this straightened out with the IRS once the tax identity theft has been committed. Here are the steps you need to follow when informing the IRS:
- You will need to file the old fashioned way and prepare a paper copy of your correct tax return.
- Fill out Form 14039, Identity Theft Affidavit. This will inform the IRS that the first tax return was fraudulent and should be ignored. Attach the form to your paper tax return and mail it to the IRS by certified mail.
- Once you have done this, you will need to wait for the IRS to respond which may take up to six months.
The individual should also notify their bank and credit card companies to monitor any unusual transactions, in case the thieves try to commit other financial crimes. You should also file a police report and notify the Federal Bureau of Investigation (FBI) and the Federal Trade Commission (FTC) via their website.
While the IRS is actively working on countering identity fraud, it still issues billions of dollars in fraudulent refunds to tax identity thieves. This puts a heavier burden on taxpayers to file their tax returns early. Since this isn’t always possible, taxpayers will continue to be at risk of identity fraud until the IRS comes up with ways to prevent it.
Luckily tax identity theft is not a huge problem in Hawaii…yet. I have two clients that this happened to, both filed in early August 2014. But this is out of more than 200 tax returns filed this year.