“Tax Identity Theft” by Frank C. Carnahan

Stolen personal identities are used for three common types of tax identity theft:

1. Filing a false tax return and claiming a refund;
2. Working under the taxpayer’s social security number (“SSN”) resulting in additional income reported to the IRS; and
3. Employers reporting wages to a person not working for them to reduce the business’ taxable income and tax liability.

The thief uses an address other than that of the taxpayer a fraudulent tax return to receive the refund check, and the IRS sends notices to the new false address so the victim does not receive them. Taxpayers typically find out after their tax return is rejected or an expected refund never arrives. If a taxpayer’s SSN is used for work, the taxpayer eventually receives a request to file a tax return or notice that their return has been changed, and must prove they did not earn the improperly reported income, usually by obtaining information from the employer reporting the wages or by showing that he did not live in or near the location from which the incorrect income was reported. If collection activity occurs, the victim needs to respond to the IRS immediately and provide documentation demonstrating they own the stolen social security number, e.g., copy of a driver’s license or passport, social security card, and a police report or FTC Affidavit of Identity Theft. The IRS should code the taxpayer’s account which hopefully protects it in the future. If the IRS determines a taxpayer’s SSN has been compromised it will request the above documentation, and if not timely provided freeze the SSN and a new SSN will be issued until the matter is resolved. The IRS has a Protection Specialized Unit and Identity Theft Hotline at 1-800-908-4490. If you are unable to work with the unit, or the unit is not properly handling your matter, taxpayers should turn to the Taxpayer Advocate Service at 1-877-777-4778.