The IRS continues to deal with the challenges of taxpayer identity theft.
For individual taxpayers who suspect that their financial information has been compromised, submitting Form 14039, Affidavit of Identity Theft, to the IRS is the place to start. Although they may not have a tax problem yet, their filing the form will alert the IRS to flag their account, showing that it may be at risk for identity theft.
A stolen Social Security number used on a tax return to claim a fraudulent refund is the most common form of identity theft the IRS sees. The fraudulent tax return causes the IRS to reject the legitimate taxpayer’s return when it is filed. Then the legitimate taxpayer must make the effort to correct the identity theft problem to obtain a refund.
Also on the increase is business taxpayer identity theft, usually involving the use of a business’s employer identification number. The number can be used to file:
- Business returns to claim fraudulent refundable credits
- Forms W-2 and 941 as part of individual identity theft efforts
Taxpayers can report credit card fraud or other types of identity theft by filing Form 14039 – even when the fraud doesn稚 appear to have a tax connection. When the IRS receives the form, it uses filters and marks the taxpayer’s account as being at risk for identity theft. The identity theft indicator helps the IRS prevent a fraudulent refund.
The IRS can also issue a number – called the Identity Protection Personal Identification Number (IP PIN) – to a taxpayer whose Social Security number has been compromised. The taxpayer must use the six-digit replacement number on the tax return. If the IP PIN isn’t used, the return will be rejected.
The taxpayer will receive a new IP PIN for every tax year that the identity theft indicator remains on the account. The IP PIN issued for a previous tax year will not be valid.
The IRS will mail two notices to a taxpayer who has been assigned an IP PIN. The first notice in early to mid-November tells the taxpayer to expect to receive an IP PIN by mail in December. The second notice provides the IP PIN.
The taxpayer will not be able to file electronically without the IP PIN. Also, if this number is lost, the taxpayer cannot obtain it from any other source.
Because identity thieves have stolen Social Security numbers from taxpayers’ mail, the IRS has been trying to find ways to reduce the use of Social Security numbers on its official notices and forms. All federal agencies must examine their systems, forms and processes for opportunities to eliminate any unnecessary use of Social Security numbers.
Other measures taken by the IRS to protect taxpayers’ identities include:
- Obscuring the Social Security number on some IRS notices to taxpayers by replacing the Social Security number with a two-dimensional bar code
- Truncating the Social Security number on, for example, the Notice of Federal Tax Lien, so that only the last four digits appear
However, for some documents, the Social Security number is required by law and cannot be removed except by an act of Congress.