Tax-Related Identity Theft

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Every year, most Americans have to file taxes. However, this common task could place a person at risk for fraud and tax-related identity theft, which has become more prevalent in recent years.

Tax season is an important time to think about identity protection. In September 2012, the IRS reported that almost 642,000 tax returns were affected by identity theft that year alone.

Identity thieves usually begin their work outside of the tax system by gaining access to an individual's personal information through lost or stolen wallets, trash with intact documents, unsecured Internet websites, or phishing emails. 

It's important to understand how tax identity theft occurs and what measures you can take for identity theft protection and to help protect your taxes from being compromised.

What is tax-related identity theft?

Tax-related identity theft most commonly occurs when a thief gets a hold of a taxpayer's name and Social Security number and then fraudulently files a tax return in order to receive refunds or credits.

If a Social Security number is stolen, an identity thief can also secure a job and have income reported to the number, which will make it look like the victim's full income was not disclosed on his or her tax return.

Victims of tax identity theft will also be delayed in receiving their tax refunds—if an identity thief files a tax return with your information before you do, your legitimate return will be flagged because it will be the second one filed under your name.

How do you know if your tax identity has been stolen?

The first sign of tax identity theft may come in a letter from the IRS stating your identity has already been used to file a tax return or that you have a balance, a refund offset, or collection actions taken against you during a tax year when you did not file.

Other signs might be if you receive a W-2 from an unknown employer, or if your state or federal benefits were altered because of income you did not receive.

What should you do if you are a victim of tax identity theft?

  • If you receive a letter from the IRS, quickly respond to the contact information listed. Contact the IRS directly if you are unsure whether the letter is authentic. Bear in mind that the IRS does not use electronic communication to collect information, so be wary of any emails.
  • Report your case to the Federal Trade Commission, which manages all types of identity theft.
  • Review your credit reports and place a fraud alert on all of them.
  • File a police report with the department that has jurisdiction in your case.
  • Record all communication you have during the troubleshooting process, and file copies of all letters received and sent.

What steps can you take to help you avoid becoming a victim of tax identity theft?

  • Keep your Social Security card and tax-related documents that include your Social Security number in a secure place.
  • Watch out for emails, websites, tweets, and phone and fax messages that impersonate the IRS. These are especially common during tax season.
  • If you file your taxes electronically, make sure all sensitive data on your computer is protected and that you only work on a secure Internet connection.
  • File your tax return as early as possible during tax season.
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