Tax Preparer Guide to Identity Theft

Everywhere you turn you hear more and more instances of identity theft.  As tax preparers, we see this when electronically filed returns are rejected because someone has already filed using a stolen Social Security number.    This is the start of a time-consuming and frustrating process.  Earlier this year, Turbo Tax suspended State e-filings due to a large number of fraudulently filed returns.

The problem is getting worse.  According to the Treasury Inspector General for Tax Administration, there were almost 2 million suspected tax identity theft incidents in 2013, compared with 440,000 in 2010.  It is estimated the IRS refunded $5.8 billion of fraudulent claims, while blocking $24 billion in attempts.

However, there are steps you can take to help prevent tax-related identity theft and your tax preparer can play a critical role in assisting you.

First, ask the IRS for an Identity Protection PIN.  Your return will not be accepted unless your PIN is included and the PIN will change each year.  If you are married, each spouse should obtain an IP PIN.  To get one, apply at http://www.irs.gov/Individuals/Get-An-Identity-Protection-PIN. If your return has already been compromised, complete Form 14039, Identity Theft Affidavit, to put an indicator on tax records for future questionable activity.  http://www.irs.gov/pub/irs-pdf/f14039.pdf

Second, be proactive.  Update your passwords regularly, update computer applications including antivirus software and use password-protected Wi-Fi.  Shred sensitive documents.

Third, beware of phishing scams and remember the IRS never initiates contact by email, text or social media.  If you receive a call from the IRS, ask for a number to call back and confirm it is from an actual IRS representative.

If you are a victim of tax-related identity theft, expect a long drawn out process.  A resolution from the IRS takes on average 120-180 days.  In addition, it is near impossible to contact the IRS for updates along the way.  Plus, you will not receive a tax refund until the matter is resolved.

There are no easy solutions against identity theft as our life’s become more electronically focused; however, taking a few simple steps can save you several headaches along the way.