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How to Recognize the Signs of Identity Theft

Identity theft is a serious crime and of increased concern in recent years. Identity theft occurs when someone uses another person’s personal information, such as name or Social Security Number (SSN), without permission, to commit fraud or other crimes. There are several different types of identity fraud and the taxpayer’s response to each should be tailored to address the unique circumstances involved. In tax crime cases that involve identity theft, the victim must take specific steps to rectify the situation and the first step is identifying what type of identity theft has taken place.

What are the Different Types of Identity Theft?

There are two basic types of identity theft: refund theft and employment theft. Refund theft occurs when a thief uses a taxpayer’s SSN to file a tax return and claim a refund based on that tax return. If the identity thief files the tax return before the taxpayer, then the thief can claim the refund before the taxpayer is aware of what is occurring. As an example of tax refund theft, suppose a taxpayer files her form 1040 with the IRS on April 15. A month later, the taxpayer receives a letter from the IRS stating that the return was already filed and the refund was already issued. In this case, the taxpayer’s identity was stolen and someone claimed the taxpayer’s refund fraudulently. If a client’s refund was stolen by an identity thief, he or she must notify the IRS.

Employment theft occurs when an identity thief uses another person’s SSN in order to get a job. When employment theft is taking place, the thief’s employer reports false income to the IRS under the taxpayer’s SSN. This has the effect of making it appear that the taxpayer did not accurately report all of his or her income on the Form 1040 tax return. In this case of employment theft, the IRS sends a CP2000 notice to the taxpayer stating that the income on file with the IRS under the SSN does not match the information reported on the taxpayer’s Form 1040. The taxpayer should inform the IRS that his or her SSN was used fraudulently and she is a victim of employment theft.

A final type of quasi-identity theft occurs when a taxpayer suspects that he or she may be a victim of identity theft, but it hasn’t actually had any tax consequences for the taxpayer. An example of this would be if the taxpayer’s purse or wallet is stolen, along with any identifying information or SSN cards.

How Can I Spot the Signs of Identity Theft?

There are several notices sent by the IRS which may indicate identity theft. If you receive any of these notices from the IRS, you should consider whether you may be a victim of identity theft.

  • Multiple returns filed/return rejection: If the taxpayer receives a rejection code or letter from the IRS indicating that a return has already been filed, this might indicate identity theft.

  • Underreporter notice: If the IRS sends the taxpayer an underreporter notice such as CP2000, Notice of Proposed Adjustment for Underpayment/Overpayment, with wages or income from an employer unfamiliar to the taxpayer, then this might indicate identity theft.

  • Tax return error or balance owed: If the taxpayer receives notice from the IRS that there was an error on the tax return or tax owed, but the taxpayer actually had no filing requirement, this is a red flag for identity theft. This notice should particularly raise red flags if the taxpayer is a retired person or a child.

  • Tax balance owed: If the IRS sends the taxpayer a notice stating an intent to levy assets or income for a balance owed, but the taxpayer has no knowledge of any tax owed, this might indicate identity theft.

  • Questionable notice: This notice applies more to the taxpayer’s representative than to the taxpayer himself. If you learn that the IRS has the wrong address on file for your client, it might indicate that someone is using the taxpayer’s SSN fraudulently. In that case, it is wise to take action to prevent future tax impact for the taxpayer/client.

  • Unrequested Taxpayer Identification Number (TIN) Issuance: If the taxpayer receives a TIN that he or she never requested, this is a red flag that someone might be using the taxpayer’s SSN or other information fraudulently.

What Should I do if I am a Victim of Identity Theft?

If you receive any of the notices above, or suspect that you might be a victim of identity theft, then you must contact the IRS as well as your tax representative. You will need to describe the incident that caused the identity theft to your tax representative, who will then transmit the information to the IRS.

When you make a claim for identity theft relief with the IRS, you will have to provide particular information, including a copy of your driver’s license, Social Security card, or passport. If you suspect that you are a victim of identity theft, then your tax representative should contact the IRS Identity Protection Specialized Unit (IPSU) toll free at (800) 908-4490. The IPSU is responsible for monitoring the taxpayer’s account but does not actually take corrective action to address the issues surrounding identity theft. The IPSU was created in 2008 to address the increasing threat to taxpayers of identity theft. The IPSU receives calls from taxpayers who believe that they have been victimized by identity thieves. After a formal notice is filed with the IPSU, the claim will be handled by the IRS unit responsible for the taxpayer’s particular issue.

How a Tax Attorney Can Help with Identity Theft?

If you believe that you have been a victim of identity theft, then you must consult with an experienced tax attorney. San Diego Tax Attorney William D. Hartsock has been successfully helping clients with criminal tax issues since the early 1980s. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circumstances of their case. To schedule your free consultation simply fill out the contact form found on this page, or call (858) 481-4844.

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The Tax Lawyer - William D. Hartsock, Esq. – San Diego Tax Attorney

Author: William D. Hartsock, Esq

A "Certified Tax Law Specialist" for over 37 years, Mr. Hartsock is one of the most trusted and respected tax attorneys in Southern California. Call today to discuss the facts of your case and learn about your options. Mr. Hartsock offers free consultations and all conversations are protected under attorney-client privilege; meaning that no information shared with a tax attorney will be shared with the IRS or California Franchise Tax Board.