With growing reports of an epidemic in tax identity theft, the Internal Revenue Service is flagging more than 1 million tax returns as potentially fraudulent in the current 2023 tax season. The alarming statistic has compelled the IRS to issue some vital advice to taxpayers on protecting oneself from becoming a victim of this pervasive crime.
The IRS, in an Tuesday news release, discussed two tools available to both taxpayers and the tax professionals storing their clients’ sensitive information to protect against tax-related identity theft. One of the tools is an IRS Identity Protection PIN program that offers taxpayers a six-digit number; when used, it stops someone else from filing a tax return using their Social Security number or Individual Taxpayer Identification Number.
The scope of the problem
Identity theft has been a problem the IRS has wrestled with since 2004, but it spiraled in the past few years to an out-and-out crisis. Indeed, in 2022, identity theft remained the top kind of fraud reported by consumers to the Federal Trade Commission. The IRS responded with an aggressive security posture, using 236 filters designed to spot potentially fraudulent returns during the 2023 tax season, compared with 168 filters last filing season.
Identity theft for tax purposes refers to the practice by criminals who use the identity of a taxpayer and file a fraudulent return on behalf of the taxpayer in pursuit of obtaining the federal tax refund. The process afterwards is usually devastating to the victim, who may need to wait for up to two years to secure the due refunds. The blow falls most heavily on lower-income families who so greatly rely on refundable tax credits like the Earned Income Tax Credit.
Tips for taxpayers
The IRS issued the following tips to help taxpayers avoid falling victim to identity theft:
- Freeze your credit: Contact the three major credit bureaus—Equifax, Experian, and TransUnion—and place a freeze on your credit to block access to your records, so that no new accounts can be opened in your name.
- Protect your Social Security number: Be careful with your Social Security number and properly store it. Do not carry your Social Security card around in your pocket or purse.
- Be on the lookout for phishing and spoofing: Be wary of unsolicited phone calls, emails, and text messages that appear to be from government entities or businesses. Verify the legitimacy of any request for personal information before responding.
- Use strong passwords and two-factor authentication: Unique and complex passwords at each of your accounts is a good idea; consider using a password manager, too. Two-factor authentication is available in many spots, so turn it on to provide that extra layer.
- Monitor your accounts: Sign up for alerts from your financial institutions to know about possible suspicious activity on your accounts. Check your credit reports regularly for any unauthorized activity.
What to do if you’re a victim
If you believe you’re a victim of tax-related identity theft, the IRS says you should:
- File an identity theft affidavit: If your e-filed return is rejected because of a duplicate filing using your Social Security number, complete IRS Form 14039, Identity Theft Affidavit. Keep filing your tax return, even if you must do so on paper.
- Respond to IRS notices: If you receive a letter from the IRS about suspected identity theft respond immediately to verify your identity to resolve the issue.
- File a complaint with FTC: Visit identitytheft.gov to file a complaint with the Federal Trade Commission and to create an identity theft affidavit.
- Reach out to credit bureaus: You will need to contact one of the three major credit bureaus—Equifax, Experian, or TransUnion—to place a fraud alert on your credit file.
- Close fraudulent accounts: Work with the IRS and other financial institutions in closing the accounts scammers may have opened in your name using your personal information.
It also encouraged taxpayers and tax professionals to register for an IRS Online Account, which it claimed would reassure people that they can log in online to account information with the IRS and would also help safeguard against scammers attempting to convince people to set up an online account.
“The IRS and the Security Summit encourage everyone to sign up for IP PINs and the Online Account to protect their precious information and to help avoid issues with their taxes in the future,” the IRS spokesperson said. In its annual report to Congress last month, the Electronic Tax Administration Advisory Committee recommended that the Identity Protection PIN should be more broadly adopted to deter fraud.
