Tax ID theft is a growing concern for taxpayers and tax professionals alike. As the October deadline approaches, the risk of identity theft escalates, making it essential for tax professionals to be vigilant. Recognizing the signs of tax ID theft early can help prevent significant financial and personal harm to clients. Optima Tax Relief reviews the red flags of tax ID theft, including examples and advice on how tax professionals should respond if they suspect that their client’s identity has been compromised.
Common Red Flags of Tax ID Theft
There are dozens of ways scammers take advantage of taxpayers. Here are some of the most common reg flags tax professionals should watch for.
Rejected E-File Due to Duplicate SSN
One of the most common signs of tax ID theft is when a client’s e-filed return is rejected because the Social Security Number (SSN) has already been used. This could indicate that someone has already filed a return using your client’s information.
Unexpected IRS Notices
If a client receives IRS notices or letters regarding a tax return they did not file, or if they receive a notice about an income source that they do not recognize, this is a strong indication of tax ID theft.
Unfamiliar Tax Transcript Entries
Reviewing a client’s tax transcript can reveal anomalies, such as unrecognized income sources, tax withholdings, or credits that the client did not claim. For example, upon reviewing a client’s transcript, you find an entry for a W-2 from an employer they’ve never worked for. This could be a sign that their identity was stolen to file a tax return.
Problems with Wage Verification
During wage and income verification processes, discovering discrepancies between the information your client provided and what the IRS has on file is another red flag.
Communication from the IRS about a Suspicious Return
The IRS may contact your client directly about a suspicious return, especially if there are anomalies such as requests for direct deposit into unfamiliar bank accounts.
Notice of Unauthorized IRS Online Account Creation
A newer red flag involves clients receiving notices that an IRS Online Account was created in their name without their consent. This could indicate that someone has gained access to their personal information and is attempting to control their tax filings or access sensitive tax records.
Clients Receive Refunds Without Filing a Tax Return
If your client unexpectedly receives a tax refund without having filed a return, this is a clear indication that someone has fraudulently filed on their behalf, often using stolen information.
Clients Reach Out About Calls or Emails the Tax Pro Didn’t Make
Another red flag is when clients report receiving communications (such as calls or emails) from “you” or your office that you never actually sent. This could be a sign that scammers are impersonating you to gain access to sensitive information.
Tax Professional Begins to Experience Slow or Unexpected Computer or Network Responsiveness
As a tax professional, if you notice that your computer or network begins to slow down, freeze, or behave unexpectedly, this could indicate that your system has been compromised. Hackers might be attempting to access sensitive client information.
How to Respond to Suspected Tax ID Theft
- Alert the Client Immediately. Explain the situation in detail and provide guidance on the next steps. The quicker the issue is addressed, the better the chance of mitigating its impact.
- File Form 14039 (Identity Theft Affidavit). This form officially alerts the IRS of the identity theft and starts the process of rectifying the situation.
- Monitor the Client’s IRS Account. This helps ensure that no further fraudulent activity occurs.
- Encourage Your Client to Monitor Their Credit. Advise your client to check their credit reports regularly and consider placing a fraud alert or a credit freeze on their accounts.
- Assist with Obtaining an IP PIN. This will prevent fraudulent tax returns from being filed under their SSN in the future.
- Contact the IRS’s Identity Protection Specialized Unit (IPSU). The IPSU specializes in helping taxpayers who have been victims of identity theft.
- Address Potential Security Breaches. If you suspect that your own computer or network has been compromised, immediately disconnect from the network, run a full system scan with updated security software, and consider consulting with a cybersecurity expert to address potential vulnerabilities.
- Advocate for Your Client. Be prepared to advocate for your client, whether it’s by following up with the IRS, assisting with additional documentation, or representing them if the matter escalates.
Conclusion
Tax ID theft is a serious issue that can have long-lasting consequences for both taxpayers and tax professionals. By recognizing the red flags and taking swift, appropriate action, tax professionals can protect their clients and help mitigate the effects of identity theft. Staying vigilant, educating clients, and maintaining robust security practices are key to preventing tax ID theft and ensuring a smooth and secure tax filing process.
