Identity theft is a fact of life. Clients who are victimized by identity theft are likely to be on the lookout for unauthorized credit card charges or erosion of their credit scores. Unfortunately, however, the client’s tax records can also be at risk.

In one common scheme, an identity thief will use a stolen Social Security number (SSN) to file a forged tax return claiming a fraudulent refund early in the filing season. The real taxpayer may not be aware that this has happened until the taxpayer’s legitimate return is filed later in the season and discovers that two returns have been filed using the taxpayer’s SSN. In another scheme, an identity thief may use a stolen SSN to get a job.

When wages from the employer are reported to the IRS using the taxpayer’s SSN, but are not shown on the taxpayer’s return, the taxpayer will receive an underreporting notice. Identity theft should be suspected if a client receives a letter or notice from the IRS indicating that:

  • More than one tax return was filed under the client’s SSN;
  • A balance due, refund offset, or collection actions for a year the client did not file a return; or
  • IRS records show the client received wages from an unknown employer.

Bear in mind, however, that the IRS does not contact taxpayers by email or other electronic communications, such as text messages or social media. A client who receives an email or other communication purporting to be from the IRS, should forward it to the IRS at phishing@irs.gov.

What to do. If a client receives a suspect notice, respond immediately to the name and number printed on the notice or letter. The client will need to complete Form 14039, Identity Theft Affidavit, to explain the problem. If that doesn’t resolve the problem, contact the IRS Identity Protection Specialized Unit, toll-free at 1-800-908-4490.

Once a case of identity theft is resolved, the IRS has begun a process of issuing Identity Protection PIN (IP PIN) numbers to victims of identity theft for use in filing their returns. An IP PIN is a unique six-digit number that verifies that the taxpayer is the rightful filer of the return. During this 2014 filing season, the IRS expects to provide more than 1.2 million victims with an IP PIN, up from more than 770,000 the year before. The IP PIN will allow these taxpayers to avoid delays in filing returns and receiving refunds

Protecting tax records. A client who believes his or her tax records may be at risk due to lost or stolen identifying documents, questionable credit card activity, or an unusual credit report can take proactive steps to those records. The client should contact the IRS Identity Protection Specialized Unit at the above phone number. The client will be asked to provide a copy of any police report to complete Form 14039.

Cut the risk of identity theft. Over the past year, the news media has been full of reports of high-tech schemes to obtain individual’s identifying information, including a massive data breach at Target stores. However, identity thieves can employ far more low-tech means of obtaining personal information, ranging from simply stealing a purse or wallet to dumpster diving for carelessly discarded documents.

You may want to alert your clients to these suggestions from the IRS for minimizing the chances of becoming an identity theft victim:

  1. Don’t carry your Social Security card or any document containing your SSN.
  2. Don’t give businesses your SSN just because they ask— question why it is needed and how it will be used.
  3. Protect your financial information.
  4. Check your credit reports at least every 12 months.
  5. Secure your personal information at home.
  6. Protect your personal computers by installing firewalls, antispam/virus software, updated security patches, and new passwords for Internet accounts.
  7. Don’t give personal information over the phone, through the mail, or on the Internet unless you have initiated the contact and are sure you know who is asking.

Watch out for W-2s. Advise your clients not to carelessly discard copies of W-2 forms, even if they no longer need to be retained for tax purposes. Under current rules, W-2 forms must contain an employee’s complete SSN [IRC §6051(a)(2)]. The Obama administration and Congressional lawmakers have proposed changes to the tax Code that would allow the use of truncated SSNs on W-2 forms. Under IRS regulations, truncated identifying numbers are currently permitted to be used on 1099 information returns.

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