Many people are aware of the many pitfalls of identity theft, including the potential credit implications, the hassle of getting new cards and information, and the lackluster financial history with which an identity theft victim is sometimes associated. Yet identify theft also has federal tax implications, namely when it comes to reported income and tax returns. To avoid the pitfalls of identity theft, particularly as they relate to federal tax law, it is important to understand the ways in which fraudsters can take advantage of a taxpayer’s identity, and cause major problems for taxpayer victims down the road specific to identity theft and the IRS.
Identity Theft and the IRS
First, an identity thief that uses a victim’s social security number to obtain employment and subsequently incurs what appears to the Internal Revenue Service (IRS) to be unreported income can cause problems for taxpayers. Usually, such problems will not even come to the victim’s attention until they receive correspondence from the IRS regarding unreported income, which may prompt a time consuming investigation by the taxpayer into his or her own records to locate the source of the unreported income. Internal Revenue Service, Internal Revenue Manual, 18.104.22.168.2 (10-19-2012) Definition of Key Terms, available at the IRS
An identity thief may also be able to use the victim’s social security number to file a false federal income return pursuant to obtaining a fraudulent refund. Provided that the fraudster conducts this process early enough, the fraud will have been complete before the victim even attempts to file a return and it is rejected as a duplicate. In fact, liability may even be assessed against the victim of the fraud by the IRS before the victim even knows what is going on. Id.
If a taxpayer has been aggrieved by identity theft, there are procedures that can be followed to address the situation. For example, if a taxpayer is notified by the IRS that identity theft has taken place and that a taxpayer’s social security number is being used fraudulently, the taxpayer can submit an IRS Identity Theft Affidavit, Form 14039. Internal Revenue Service, Taxpayer Guide to Identity Theft, available at the IRS The form provides some basic information about the taxpayer as well as the taxpayer’s understanding of the situation and basis for believing identity theft has occurred. The form can be found at https://www.irs.gov/pub/irs-access/f14039_accessible.pdf. In addition, a taxpayer will often have to provide substantiation documentation to support the identity theft claim, and that documentation will remain valid on file with the IRS for three years.
Taxpayers seeking additional assistance with identity theft issues can also contact the IRS Identity Protection Specialized Unit, toll-free, at 1-800-908-4490. As always, raising these issues with an experience tax attorney will be infinitely valuable in ensuring that all remedial measures are taken in an identity theft situation.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.