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According to the US Treasury Department, the IRS reported more than one million tax returns for potential identity theft during the 2023 tax season, signaling that such fraud remains a pervasive problem for taxpayers.
Tax-related identity theft occurs when criminals use a taxpayer’s personal information to file a tax return on their behalf in order to claim a federal tax refund.
The IRS identified nearly 1.1 million tax returns as potentially fraudulent through March 2, according to a Treasury Department report released Tuesday that analyzed data during filing season. Related refunds totaled approximately $6.3 billion.
The Treasury Department had confirmed at the same time in March that 12,617 of the tax returns were forged, the Treasury Department reported. This number is up from 9,626 tax returns at a time in 2022.
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Tax-related identity theft has been a problem since around 2004-2005 and has “only gotten worse” since then, said Nina Olson, executive director and founder of the Center for Taxpayer Rights.
“It was no longer an isolated case [thief] “Ripping off someone’s Social Security number is a scheme of intrigue and organized crime,” Olson said.
Identity theft was the top type of fraud consumers reported to the Federal Trade Commission in 2022. A report released Wednesday by the Identity Theft Resource Center found that identity crime fell in 2022, but only slightly from 2021’s all-time high.
Since the 2022 tax season, the IRS has increased the number of filters it uses to identify potentially fraudulent tax returns. The agency deployed 236 filters last tax season, compared to 168 filters last year, the Treasury Department said.
Tax returns identified as fraudulent by these IRS filters are held pending processing until the IRS can verify the taxpayer’s identity.
“You’re trying to crack down… to make sure it’s you [the one] actually filing,” said Dan Herron, a chartered accountant and chartered financial planner based in San Luis Obispo, California.
However, sometimes the system accidentally detects returns that are not fraudulent.
One of Herron’s new clients filed a paper tax return with a different accountant each year, but filed an electronic tax return in 2023. The customer received an IRS notice in the mail stating that the tax return was reported as fraud. The client had to contact the agency to verify his identity – which delayed the issuance of a tax refund by several weeks, Herron said.
“It’s not a perfect system, but it’s a step in the right direction,” Herron, founder of Elemental Wealth Advisors, said of the IRS systems.
How to protect yourself from tax identity theft
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Taxpayers may not know they are a victim of tax-related identity theft until they attempt to file a tax return online and learn that a tax return has already been filed using their social security number. The IRS can also send a letter saying they’ve found a suspicious return, such as your SSN and other telltale signs.
In this case, taxpayers can still claim a refund. However, they must take additional steps to prove their identity to the IRS, and this will likely delay their refund.
Perhaps the best way for taxpayers to prevent identity theft is to request an Identity Protection personal identification number (IP PIN) directly from the IRS, Olson said.
The IP PIN is a six-digit number assigned to eligible taxpayers at the start of each filing season. It is known only to the taxpayer and, once issued, is required as an authentication measure when filing a tax return.
A tax return filed by a scammer without the associated IP PIN would not be processed, Olson said. She recommends taxpayers who want an IP PIN request it in the second half of the calendar year, before tax season, and have it on hand.
According to the Treasury Department report, as of March 4, the IRS has issued a total of 802,449 IP PINs to taxpayers.
Taxpayers can also reduce their risk by trying to file a tax return early in tax season, experts say. The IRS also recommends various online security measures related to computers and mobile phones, digital passwords, multi-factor authentication, and avoiding suspicious email links or attachments.
The IRS also never emails, texts, or social media with taxpayers to request personal or financial information, and never calls to threaten lawsuits or arrest, the agency said.
What to do if you are a victim of tax ID theft?
The IRS recommends that victims of tax-related identity theft take a few important steps:
- Complete IRS Form 14039, Identity Theft Affidavit if your electronic return is denied due to duplicate filing using your social security number. Keep paying your taxes and filing your tax return, even if you have to do it on paper. Include the identity theft form with your paper return.
- Respond promptly to any IRS notice.
- File a complaint with the FTC at Identitytheft.gov.
- Contact any of the three major credit reporting agencies (Equifax, Experian, or TransUnion) to enter a fraud alert on your credit records.
- Close any financial or credit accounts opened by thieves.