Identity Theft

Identity Theft – This has become a major concern for everyone.  Identity theft that results in the filing of a fraudulent income tax return can cause serious problems for the individual. 

Here is how it usually occurs.  The bad guy files a fraudulent income tax return early in the year, usually in February or March.  This return will show a refund.  Sometimes the refund is issued to the bad guy and sometimes the IRS recognizes that the return is fraudulent and they hold the tax return instead of processing it. 

The real taxpayer then files his return in April or even later.  The real return shows a refund also.  The IRS now has two tax returns for the same individual and they hold the real tax return and the refund until the situation can be cleared up.  So the real taxpayer who is waiting for their income tax refund now has to wait for 6 or more months for their refund.  If the taxpayer has plenty of cash in their bank account, this may not create a serious hardship.  But many individuals count on their tax refunds to pay living expenses. 

There may be other problems that occur as well.   I have a client who was applying for a mortgage and the mortgage company needed verification of her having filed her 2016 income tax return.  She was the victim of identity theft tax fraud in 2016 and the IRS could not process her 2016 tax return timely.  Naturally, this created a problem with the mortgage company.  (Fortunately, we were able to get a filing transcript from the IRS that satisfied the mortgage company.)

The Internal Revenue Service is very aware of this problem and they continue to add new security checks in an effort to prevent as much tax fraud as possible.  There are more than 200 e-file fraud detection filters in place with the IRS.  No more than three refunds can be deposited to one bank account.  The IRS locked over 29 million deceased taxpayer accounts recently.  And the IRS is stepping up the prosecution of criminals. 

There are a few things that you can do to minimize the chance of being victimized by tax fraud. 

• Do not use simple passwords such as “123456” or “Iloveyou”.  Passwords that include an uppercase letter, a lowercase letter, a number, and a special character dramatically reduce the odds of being victimized by identity theft. 
• Be sure your mobile telephone has a lock code.  (40% of all mobile telephones have no lock code.) 
• Do not reuse passwords.  Criminals count on this. 
• Shred financial documents. 
• Review your credit report. 
• Finally, certain taxpayers can request an Identity Protection Personal Identification Number (IP PIN) from the IRS.  Of particular interest to Florida residents is that fact that anyone who filed a 2014 income tax return with a Florida address is entitled to request an IP PIN.  Once an IP PIN has been assigned to a taxpayer, their income tax return will NOT be processed without this number.  This can go a long way in preventing tax fraud.