By Oleg Ikhelson, Managing Director, Head of Tax
With all the identity theft schemes that prey on unsuspecting victims, one that is too often overlooked, particularly as we enter “tax season,” is when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. The ramifications of this sort of identity theft represent a significant threat and can take years to rectify.
What Is Tax Identity Theft?
The mechanics of the fraud are surprisingly unsophisticated. A bad actor obtains your SSN and name, usually on the dark web, and files a fraudulent return with fake tax credits early in the tax season before most people have a chance to file their legitimate returns. The impersonator typically changes your address and sets up a “burner” bank account to receive the fraudulent refund.
Many victims of this crime are unaware that a fraudulent tax return has been filed until they try to file their actual return and discover that another return has already been filed. Or, the IRS may send a letter saying it has identified a suspicious return using your, or your spouse’s, Social Security number. Either way, it is an unsettling and cumbersome situation to resolve, to say the least.
Fortunately, the IRS has instituted enhancements to help protect taxpayer vulnerability in the last few years. In addition, banks are increasingly coordinating with the U.S. Treasury to intercept a large number of refunds going to burner accounts.
Consequences of Tax ID Theft
Unfortunately for taxpayers, the time and effort required to “clean-up” their tax ID presents the greatest inconvenience. It can take up to three years to remove the tax theft flag from an IRS account, during which time a taxpayer cannot file returns, obtain legitimate refunds, or carry tax overpayments from one year to the next.
What is an IP PIN?
Thankfully, there is an easy solution. Taxpayers can now take proactive steps to protect themselves from becoming a victim of tax ID theft. The IRS has developed an online tool, called Identity Protection (IP), where a taxpayer can obtain an IP PIN, which is then required to e-file tax returns in the future. Having an IP PIN essentially prevents any attempts by fraudsters to e-file a fake return.
Also Read: Why Your Family Office Should Be Using AI Tax Preparation
How Can I Get My IRS Identity Protection PIN?
Applying for an IP PIN is fast and effective. To get an IRS IP PIN simply visit https://www.irs.gov/identity-theft-fraud-scams/retrieve-your-ip-pin and follow the instructions. Once signed up for this service, taxpayers receive IP PINs automatically each January. With tax season fast approaching, it is strongly recommended that all taxpayers apply for an IP PIN from the IRS. Doing so is free and is the most effective way to limit the risk of tax identity theft.
