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Tax Identity Theft: A Stolen Refund

Tax Identity Theft: A Stolen Refund

January 15, 2024

Next week is Tax Identity Theft Week. As we kick off 2024, many of us are feverishly working to gather our tax documents and submit them with our tax return. There are also many people out there working feverishly to steal your Social Security number (SSN). While your SSN can be used for a lot of identity theft scams, this is Tax Identity Theft Awareness Week, and I want you to be aware of how thieves can use it to wreak havoc on your tax filing and what you can do, if you discover it happening to you.

I can remember years ago when we gave out our SSN like it was our first name. I was an officer in the Marine Corps, and it was my military serial number on my dog tags. I walked along the beach with my SSN gleaming brightly in the sun. I gave it to my girlfriends as a token of our relationship. In those days, the internet was in the infancy stage, and identity theft was not a common threat.

Today, I cringe when I delete a phishing email or text, worried that the same email or text might fool my wife or one of our parents. I have even called my wife when a credible looking text almost fooled me, just to make sure she did not fall prey to the scam. Thieves have become smarter, and their methods have evolved. One of the most recent frauds hackers and thieves use has been tax identity theft, where thieves use a stolen SSN.

The two primary ways tax identity thieves use your SSN are:

  • Faking identity with an employer
  • Stealing your tax refund

Your SSN or tax identification number is used by your employer to do background checks and report earnings. If someone wants to avoid a background check or if they do not have a Social Security number, they may give a fake one to the employer. If the thief uses your SSN, the employer may file earnings under your name, and your reported earnings to the IRS will be higher than what you earned. You can imagine how that might affect your tax return.

Another way thieves use your SSN, relative to your tax return, is to request your refund before you can file. The thieves manufacture a return using fake data and then submit it. A refund is issued, based on the fake return, even if you did not personally qualify for a refund. They use the many tax breaks and credits available to taxpayers to apply for as many deductions and credits as possible. For example, you may only have one child. They may request a Child Tax Credit for ten children. By applying for a lot of credits and deductions, the return may qualify for a hefty refund. Then, they have the check mailed directly to them. By the time the IRS contacts you for clarification or proof of your deduction qualifications, the thieves have cashed the refund check, and you are stuck with having to sort out the mess that they created.

You will know you have been a victim if:

  • You get notification from the IRS about a suspicious tax return that you did not file.
  • Your tax return is rejected because of a duplicate SSN.
  • Wages or income from an employer you did not work for show up on IRS records.
  • The IRS sends you a notice about an action you did not take. Examples include:
    • creating an online account
    • accessing or disabling an online account
    • requesting an Employer Identification Number

Understanding why and how tax thieves use your stolen information is key to understanding how to stop them. Here are a few things you can do to avoid being a victim of this crime:

  • File your tax return promptly.
  • Request an identity PIN from the IRS.
  • Use multi-factor authentication.

If you file your tax return before thieves have the opportunity, their return will be rejected because of a duplicate SSN. So, file as soon as possible to avoid any opportunity for thieves to steal your refund or wreak havoc on your personal finances.

If you can verify your identity, you can obtain an Identity Protection PIN. This is a six-digit PIN used to verify your identity when filing any federal tax returns. A new PIN is generated each year, and you will need to keep up with it. It may be a little cumbersome but, not as cumbersome as having your identification stolen.

Multi-factor authentication is the use of a secondary method of authenticating access or an action. If you do your own taxes or use an online provider, you will be sent a security code when you return to log in. It may be sent to your phone as a text message or to your email. You then use the security code, along with your other log-in credentials, to access your account. You should use multi-factor authentication everywhere possible to prevent thieves from stealing your information.

Protecting our personal information is critical to preventing tax identity theft. However, there are many ways a thief can get your information, and if they ever do you need to know what to do. According to the IRS (www.irs.gov), if your SSN is compromised and you know or suspect that you are a victim of this crime you should:

  • Respond immediately to any IRS notice.
  • Complete Form 14039, Identity Theft Affidavit and return to the IRS location for your state.
  • Go to IdentityTheft.gov for information about your next steps. If you go to this website, they will submit the IRS Identity Theft Affidavit to the IRS for you, online.

Protecting your identity and preventing Tax Identity Theft is something that we should be doing constantly. Thieves are always trying to get our information and exploit it for their gain and our loss. You may be able to recover from it, but the road may be long and difficult. When it comes to financial planning, this is a risk for which we do not plan. It is not something any of us want to deal with, so be careful and never stop learning about the latest frauds and methods of scamming.

The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. 

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