Identity Theft and Taxes

I tried to think of a snappy title to this post, but the truth is, identity theft is serious s#$%, and when combined with income tax fraud, it can be financially and emotionally devastating, so I’ll skip the levity and get right to it.

Tax return identity theft is when someone uses a taxpayer’s personal information (name, social security number) to file a fraudulent return to claim refunds on that return. The returns are usually filed early in the filing season, before most taxpayers have received all of the W-2s and 1099s they’re expecting. Taxpayers are usually unaware that anything has happened until they file their return, and then receive a notice from IRS that a return was already filed with the taxpayer’s social security number. In 2011, approximately 75% of all returns filed had refunds due, averaging about $3,000. In May 2012, IRS had identified about 2.6 million returns for possible identity theft, and they recently reported about 450,000 active identity theft cases.

IRS’s Publication 4535 (Identity Theft Prevention and Victim Assistance) states that people who have had their identity stolen can spend months or years (and their hard earned money) repairing their good name and credit record, and may lose job opportunities, be refused loans, education, housing or transportation, and may even be arrested for crimes they didn’t commit! An immediate result of a fraudulently filed return by an identity thief is the delay of a refund due, from the legitimately filed return, until IRS can sort things out with the real taxpayer.

What steps can you take to minimize becoming a victim of tax return identity theft, or other identity theft?

-Don’t carry your Social Security card with you, or any document with your SSN on it.
-Don’t give out your Social Security number to any business, just because they ask for it. Question why it’s needed and how it will be used.
-Check your credit report at least every 12 months.
-Secure your personal information at home, and get yourself a shredder. Shred everything that you think has anything remotely resembling personal information, including unsolicited credit card offers.
-Protect your personal computers with firewalls and anti-spam/virus software, and regularly change passwords for accounts with sensitive information (such as banks, brokers, credit cards).
-Don’t give out personal information over the phone, by mail, or on the internet unless you are the one who initiated contact or you’re sure you know who is asking. And remember, IRS will NEVER contact taxpayers by email, so if you receive an email that says it’s from IRS, forward it to to alert IRS.
-Whenever possible, ask for masked SSNs on insurance cards or any other place where the SSN is used as an identifying number. Beginning this tax season, my tax software vendor is enabling me to mask SSNs on returns. You can bet that I’ll use this feature on every client return copy that I send out, plus the pdf file will be passworded.

What do you do if you find that your identity has been stolen (either via a fraudulent tax return or otherwise)?
-Contact the Federal Trade Commission at
-File a report with the local police.
-Close any affected bank or credit card accounts.
-Inform the major credit bureaus, and consider putting a freeze on the accounts.
-Contact the IRS Identity Protection Specialized Unit at 800-908-4490. They will have you file Form 14039 (Identity Theft Affidavit).
-Respond to all IRS notices you receive in the mail, using the phone numbers listed on the notice.

As with any crime, identity theft can be a harrowing experience. I hope this information helps, and please forward it along to anybody you feel might benefit from the information I’ve provided.

Dirty Dozen Tax Scams

IRS released their “Dirty Dozen Tax Scams for 2012”, and it isn’t pretty. Individuals participating in these scams face penalties, interest, and possible criminal prosecution, so they’re not to be treated lightly. For the average law abiding taxpayer, the risk isn’t really from participating in one or more of these scams, rather it’s by being a victim of one. Briefly, here are a few of the dirtier scams.

Identity Theft-IRS says that identity theft cases are among “the most complex” ones they handle, but they’re “committed to working with taxpayers who have become victims of identity theft.” What happens is that identity thieves use stolen social security numbers and personal information to file fraudulent tax returns to obtain a tax refund. The trouble begins for a taxpayer when they file their legitimate return after a fraudulent return has been filed with her/his social security number. It’s usually at that point that the theft/fraud is detected, and the work begins to sort it all out. IRS recommends that anybody who believes their personal information has been stolen and used for tax purposes should call their Identity Protection Specialized Unit. More information can be found on IRS’s special identity theft page at

Phishing-we’ve all probably already seen plenty of emails purporting to be Fedex, Bank of America, U.S. Postal Service, etc, telling us that our mail was undeliverable, our credit card record needs updating, or some other urgent thing that we need to click on a link for. These things are all phishing scams, and the sole aim is to steal our personal information. IRS is warning taxpayers that they NEVER, I repeat, NEVER contact taxpayers by email, so if you ever receive an email saying that it’s IRS contacting you about your taxes, do not pass go, do not collect $200, do not click on any links, do not do anything but DELETE that email. Have I made myself clear?! What you can do is forward that email to, and they will investigate it. IRS has more information available at,,id=179820,00.html

Return Preparer Fraud-unfortunately one bad apple can make taxpayers wonder about all the other legitimate tax preparers out there (yours truly included). Here are a few things to look out for that may indicate the preparer is unscrupulous
-doesn’t sign the return or put an identifying number on it
-doesn’t give you a copy of your tax return
-promises a larger than normal refund
-charges a percentage of the refund as a fee
-encourages the taxpayer to place false information on a return, such as false deductions.

For purposes of brevity, I’ll wind things up now. The key thing to remember here is to always stay alert with your personal information, and if something smells fishy, it probably is. IRS has a YouTube video with more information about this topic. You can see it at

Please pass this information along to others, since this is something that could affect all taxpayers. Let me know if you have any questions, and if you have any comments, please post them to this blog. Be careful out there!

IRS Small Business Resources (yes, believe it!)

We’ve all been programmed to think that IRS is our enemy, and while I don’t necessarily believe that, I do think that anything coming from the IRS has to be treated with caution. Having said that, I can also say that IRS does actually provide some helpful information to the public. One of those things is their Small Business and Self-Employed Tax Center. It’s a sort-of ‘one-stop shopping’ place for small business and self-employed information. Granted, it’s no substitute for trained professional assistance (hey, I need to preserve my job!), but it is a good place to look at, for information on all sorts of subjects that affect small businesses and the self-employed.

Some of the things covered in the website are
-Forms and publications
-Starting, operating, or closing a business
-Employment taxes
-Independent contractor or employee

This, and much, much more! Check it all out at

Let me know if I can help you navigate the maze of the ins and outs of operating a small business, or being self-employed. Kids, don’t try this at home, and don’t go it alone! Please pass a link to this article along to anybody you feel may benefit from it.

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