How To Protect Yourself Against Tax Identity Theft

How Does Tax Identity Theft Happen?  

Tax identity theft occurs when scammers steal your personal information and use it to file taxes and receive fraudulent returns in your name.

The perpetrator could be an opportunistic cybercriminal who purchased your Social Security number (SSN) on the Dark Web after a data breach, or even a corrupt tax preparer whom you’ve entrusted to file your taxes.

If you become the victim of tax identity theft, you won’t be able to file your taxes and could have to wait upwards of 22 months for the situation to be resolved.

Even worse, if scammers have enough of your stolen personal information to file for a fraudulent refund, they could target you with more dangerous and costly forms of identity theft.

To avoid tax-related identity theft, you need to know how it happens, the warning signs that you’re a target, and what to do if you become a victim.

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5 Warning Signs That You’re a Victim of Tax Identity Theft

Every year, the Internal Revenue Service (IRS) processes hundreds of billions of dollars in tax returns, making IRS scams extremely lucrative for fraudsters.

While you won’t know for sure that you’re a victim until the IRS rejects your income tax return (due to someone else filing a return using your SSN), there are common warning signs that you can look out for:

1. You receive a 5071C letter (or other notice) from the IRS. This IRS notice alerts taxpayers to the possibility of tax ID theft. The IRS may also reach out and ask you to verify suspicious tax return data.
2. An online IRS account has been created in your name. If someone opens an IRS account using your Social Security number but doesn’t change your contact information, you may receive a notification of the new account.
3. Unfamiliar employment and income information. Check your tax transcripts and Social Security Statement for an Employer Identification Number (EIN) or records of employment and income earned that you don’t recognize.
4. You receive an account closure notice. If scammers have access to your accounts — even ones you don’t actively use — they could close them in the hopes that you’ll forget they exist. Then, at a later date, they can reopen them and use them for their schemes.
5. Unsolicited W-2s, 1099s, or tax transcripts. Employers are required to send these forms to employees every year. Whereas tax transcripts need to be requested by taxpayers. If you receive any tax records that you didn’t request, you could be at risk.

The bottom line: Any unfamiliar information from the IRS, Social Security Administration (SSA), or an unknown employer is a major red flag that you’re the victim of tax identity theft and need to act quickly.

What To Do If You’re a Victim of Tax Identity Theft

If you see any warning signs or suspect someone has filed a fraudulent tax return in your name, here’s what to do:

Report the tax fraud to the IRS

As soon as you realize there’s something wrong with your tax account, contact the IRS.

• If you contact the IRS first: Use IRS Form 14039 (Identity Theft Affidavit) to declare that you are the victim of identity theft. File this form along with a paper return and mail it to the IRS address in your state.
• If the IRS contacts you first: You’ll receive a 4883C letter, which asks you to verify your identity and declare that you did not file the fraudulent tax return in question. Then, you’ll need to either speak with an IRS agent over the phone or in person at your local IRS Taxpayer Assistance Center.

📚 Related: The 13 Latest Tax Refund Scams To Watch Out For →

File an identity theft report with the Federal Trade Commission (FTC)

An FTC identity theft report is your official record that you’ve been the victim of identity theft, and is required when contesting fraudulent charges, closing accounts, and regaining control of your identity.

The easiest way to report identity theft to the FTC is online at IdentityTheft.gov.

Notify your local and state tax authorities

Scam artists can file fraudulent local and state taxes, too. If you are the victim of tax identity theft at the federal level, there’s a good chance your state and local taxes are vulnerable.

Most state tax administrators have specific resources for residents who are victims of identity theft. You can find these resources by searching for “Identity Theft” on the appropriate website or contacting the tax department directly.

Consult this list of state tax agencies to find your state’s Department of Revenue.

Freeze your credit with all three bureaus

Your tax documents contain financial information that scammers can use to open bank accounts and take out debt in your name.

You can stop fraudsters from opening new accounts in your name by freezing your credit with the three major credit bureaus (Experian, Equifax, and TransUnion). This service is free and it doesn’t impact your credit score. However, it will also prevent you from opening up new accounts or taking out loans until you unfreeze your credit.

How to freeze your credit report with each credit reporting agency:

Each bureau has its own process for freezing credit. You’ll need to contact each one individually to prove your identity before they’ll issue you a PIN to use when freezing or unfreezing your credit file.

For quicker and more convenient protection, identity theft protection services like Aura can lock and unlock your credit file automatically.

Pay your (legitimate) taxes

Reporting tax identity fraud tells the authorities to discard the previous tax report filed in your name. But that doesn’t mean you don’t need to file and pay your taxes. As part of the recovery process, you’ll need to file an accurate report as soon as you can — and pay any taxes that you owe.

Note: After identity theft, the IRS will not let you e-file your new tax return, so you’ll have to send it by mail. Consult this list of IRS taxpayer return addresses in each state, and make sure you’re sending your return to the proper location.

Close any fraudulent bank accounts opened in your name

You may find that scam artists have used your identity to open new bank accounts or take out loans in your name.

Contact any impacted company or financial institution and ask to talk to its fraud department about closing the unauthorized accounts. You’ll need to provide the Identity Theft Report you got from the FTC and use it as proof that you did not open the original account.

Request a copy of the fraudulent return

The information on a fraudulent tax return can provide valuable clues about the thieves and even other scams they’ve committed against you. Note, that you can only request tax returns for yourself — not for family members or dependents.

To request a copy of your fraudulent tax return: Complete Form 4506-F (Request for a Copy of a Fraudulent Tax Return) and submit it either by mail or fax. If you submit it by mail, you should send the completed form to this address:

Department of the Treasury

Internal Revenue Service

Fresno CA, 93725

If you submit it via fax, you should include a cover sheet marked “confidential” and send the documents to this toll-free number: 855-807-5720

Contact your local law enforcement

Filing an identity theft report with local law enforcement can help protect you against damages caused by identity theft. For example, if someone uses your identity to commit a crime, you’ll need to use this report to clear your name. Your bank may also ask for a police report in addition to your FTC identity theft report.

📚 Related: How To File a Police Report For Identity Theft →

How To Protect Yourself Against Tax Identity Theft

Tax-related identity theft is difficult to catch, making prevention the best way to ensure that your identity and tax return stay secure throughout the tax season. Pay close attention to the way you communicate with the IRS — and the sensitive data you expose in the process.

Here are a few ways you can protect yourself against tax identity theft:

• File your taxes early. The sooner you file your taxes, the less time identity thieves have to file a return in your name.
• Request an Identity Protection PIN. The IRS can assign you a secret six-digit number that you can use to verify your identity when filing your taxes. You can request an IP PIN on the IRS.gov website.
• Protect your SSN and other sensitive information. Don’t send your SSN through unsecured methods, such as text messages and phishing emails, and keep your Social Security card somewhere safe in your home.
• Don’t follow tax advice on social media. Scammers pose as tax professionals online to trick you into falling for tax scams or giving up personal information.
• Secure your online accounts. Strong passwords protect your sensitive accounts and online information. For added security, use two-factor authentication (2FA) to prevent hackers from accessing your online accounts — even if they have your passwords.‍
• Beware of IRS imposter scams over the phone, text, or email. Scammers may impersonate IRS agents to trick you into giving up sensitive data.‍
• Thoroughly vet any tax preparer. Be especially cautious if a tax preparer refuses to sign your return — this is a huge red flag that you could be dealing with a scammer.‍
• Monitor your SSN with an identity theft protection service. The faster you can respond to identity theft, the easier it will be to resolve. Learn more about how Aura keeps your identity safe.

The best way to protect yourself from tax identity theft is by protecting your personal information. Successfully keeping your Social Security number secret makes it much harder for scammers to file a return in your name.

For added protection, consider Aura’s top-rated identity theft protection. Aura’s all-in-one digital security solution can help keep your most sensitive information safe from hackers, scammers, and fraudsters.