During the 2013 tax season, thieves were successful in stealing $5.8 billion in fraudulent IRS refunds. And, the 2014 season looks to be much worse. The insurance company Anthem (Blue Cross Blue Shield) notified approximately 80 million customers of potential identity theft, Target’s security breach affected approximately 40 million customers, and the IRS itself had a breach of their website that affected at least 140,000 taxpayers. In a recent survey of CPAs, over 68% responded that 10% or more of their clients were identity theft victims. So chances are you or someone close to you has had their identity, or at least their social security number stolen. How would you know?
If you had Blue Cross Blue Shield health insurance in the past 10 years, if you used your Target credit card in the last year, or if you requested a transcript from the IRS online, you are at risk. If thieves used your social security number to file a fraudulent tax return, when you or your tax preparer tried to efile your return, it will be rejected by the IRS. The rejection error will say a return was already filed with the social security number. This could be you, your spouse or your dependents. If another return was filed with any social security number listed on your return, it will be rejected. Another way taxpayers found out their social security number was used in a fraudulent return is they received a notice from the IRS, or they received a green refund card in the mail that they didn’t request. We had numerous clients that this happened to this past tax season.
There is a series of steps you should take if this happens to you, all of it is a big pain, time consuming, and frustrating but don’t skip any of these steps, because you don’t want this to happen to you again next year! We had a client that had this same issue three years in a row! So you need to do the following:
- File your federal tax return manually. This means attach all your w-2s and any 1099s that include withholdings and sign and date the return on page 2. Mail it to the address as per the instructions. Your state return should be okay to efile.
- Include form 14039, Affidavit of Identity Theft, with your return. If your return was filed and you received the IRS notice after filing, send in the form 14039 anyway, and mail it to the address on the form. The Affidavit will prompt the IRS to issue you a PIN to submit with next year’s return. You should also send in this form if you are a victim of identity theft that didn’t involve your tax return, you need to get that PIN for next year.
- File a Fraud Alert with one of the credit reporting agencies. You only have to notify one and the other two will be notified. You can do this online at www.Experian.com, www.Transunion.com, or www.Equifax.com. You can also call them. They will only put a temporary 90 day alert on your credit. If you want a permanent, 7 year alert, you will have to file a police report and send them a copy. A Fraud Alert will require the agencies to notify you if someone tries to open any credit in your name or inquires about your credit.
- Consider signing up with a credit monitoring service. Anthem customers receive a free 2 year subscription to Allclear ID service and the IRS will give a one year subscription to the Equifax credit monitoring service to anyone who received their notice. There are many of these services available and we recommend this be done sooner rather than later.
The IRS has taken steps recently to combat identity theft. They are now limiting the number of direct deposit refunds to the same bank account to three. Any more than 3 will be flagged and may not be processed. Therefore, if you have your refund and two kids returns refunds going into the same bank account, that’s fine, but any additional refunds should be deposited into a different account or have a check issued.
Lastly, the IRS will never call you unless you have an ongoing case with them and have been assigned a case-worker. Thousands of people have gotten phone calls claiming to be from the IRS and threatening jail for not complying with the caller’s request for money or identification information. This is the most prevalent scam occurring now, so don’t be fooled!
Felecia Sternbach and Ellen Rose are both CPAs with over 25 years of tax, accounting, and business experience. They are knowledgeable, client-focused accountants who make sure their clients get the best possible service and attention. Their accounting practice focuses on the needs of small businesses and start-ups. They are especially passionate about helping entrepreneurs succeed and thrive in today’s very competitive and challenging business climate.
Sternbach & Rose, CPAs – Where you’re never just a number.