What to Do If Your Client Is a Victim of Tax Refund Fraud

Repost from Thompson Reuters


When one of your clients receives a letter or e-file rejection from the IRS telling them a tax return has been filed with their social security number — and they have not yet filed — it is a frustrating and frightening experience. They face the prospect of a long-delayed refund and, more frightening, a thief has their social security number so their identity in other areas is in jeopardy. As their tax practitioner, you play a valuable role in helping your client regain their tax identity, and can also assist them with an overall identity protection plan.

Representing a taxpayer who is a victim of tax refund fraud will require a significant amount of time on your part, including telephone wait time and IRS response times, so it is important to know what actions to take. Below are several steps that can help you support your client when someone has attempted to use their identity to file a fraudulent return.

1. Make contact with the IRS as soon as possible. If the client generally files jointly, be sure to communicate to the IRS that both the client and their spouse should have an identity theft indicator placed on their tax accounts.

2. Complete IRS Form 14039 with the client. This form requires attaching clear and legible copies of documents to verify their identity and will help the client if there is further identity theft outside of tax refund fraud. It is best that the document set be as complete as possible because the gathering of this information will have a long-term benefit. These documents might include driver’s licenses, birth certificates, and passports. And, of course, using Form 14039 will require paper filing of the “real” tax return.

3. File a police report. This is a critical step for a variety of reasons, including that the report, combined with other documentation noted in step 2, gives your client the right to an extended fraud alert with the three major credit bureaus (see step 5 below). With the extended alert, they will be covered for seven years.

4. Have your client file a complaint with the Federal Trade Commission (FTC). The FTC website provides an online tool that is easy to follow. The act of filing the complaint also provides an affidavit that the client can use as documentation if other issues arise.

5. Have your client contact one of the three major credit bureaus (Equifax, Experian, or Transunion) at a minimum to request a credit report and put a hold on new credit requests. If at all possible, they should request a fraud alert as noted in step 3 above.

6. In addition to the above, it’s also a good idea to request a Social Security earnings report using Form SSA-7004. That may provide insight in the event that someone is reporting income on their social security number.

7. Ensure the client has received an IP PIN by December. If the IRS has confirmed that someone has used your client’s social security number and they have placed an identity theft indicator on the client’s account, an IP PIN will be issued to your client for use in filing their tax return for the next year. The IP PIN is a unique number that is assigned to victims to prevent tax refund fraud on future returns. The IRS sends a new IP PIN in December of each year. If your client does not receive a new IP PIN or it is misplaced or lost, an IP PIN can be requested and retrieved online athttp://www.irs.gov/Individuals/Get-An-Identity-Protection-PIN.

Beyond just dealing with the tax identity theft of your client, you also can advise them to monitor their financial accounts and credit card transactions for any unusual activity. In addition, a rising area of concern is medical identity theft. Your client should ensure they have copies of medical records from their doctors, and that they are correct. Also, they should diligently check all explanations of benefits they receive from their medical insurance provider for accuracy.

Because personal information can never be fully recovered, tax identity theft can be a recurring issue. One of the best things you can do as a tax practitioner is to encourage your client to get their tax data to you early in the year so you can file their tax return as early as possible. This gets them ahead of potential criminal activity.