4/16/2013 5:45 PM ET|
Stolen refund? What to do
Making some key moves early can lead to a quicker resolution.
While many Americans have already received tax refunds for last year, a growing number are getting some rather frustrating news -- a notice that their check has been cashed by someone else.
Despite efforts by the Internal Revenue Service to target tax cheaters -- the agency last week said it prevented $20 billion in would-be fraudulent refunds in 2012, up from $14 billion the year before -- tax-related identity fraud is on the rise. The IRS Identity Theft Protection Specialized Unit received nearly 450,000 cases of identity theft last year, up 78% from 2011. "This is a major problem, and it can tarnish just about every aspect of your life, " says Michelle Wynn, a tax attorney with IRS Medic.
Many legitimate taxpayers don't realize their refund has been stolen until they prepare their returns -- and have them rejected by the IRS. Others will receive a letter from the IRS stating they may owe more taxes because their returns didn't include all of the income being earned under their name and Social Security number -- a sign that someone else may be working under their personal information, says Wynn.
What should victims do? Step 1, says the IRS, is to call the agency to launch an investigation. The IRS will then move to confirm the taxpayer's identity, track down the thief and (hopefully) recover the refund. The IRS says the average case takes about 180 days -- and that it's looking to cut down that time. But some victims have to deal with the IRS for years, especially in complex cases where the fraud went on for multiple years, the national taxpayer advocate, Nina Olsen, noted in her last annual report to Congress, in which she identifies the most serious problems facing taxpayers.
Taxpayers who suspect their identity has been stolen should call the IRS Identity Protection Specialized Unit at 800-908-4490 and fill out an IRS Identity Theft Affidavit, Form 14039 (.pdf file). The IRS may ask for certain documents to help verify the taxpayer's identity, such as a photo ID, W-2 forms and previous tax returns.
Some rare cases will require legal action. For example, if the IRS tries to seize your property or checking account for a tax bill triggered by fraud — a scenario that may happen if the fraud goes undetected for years — you may have to make your case in court, says Wynn. Identity theft victims should also check for signs of abuse in previous years, says Wynn, recalling one client who didn't realize his identity had been stolen until he received a collection notice for a previous tax year.
Tax experts recommend getting what's called a tax account transcript from the IRS, a free document that lists the income being reported under a Social Security number, along with marital status and the types of returns filed. Victims should also check their credit reports at AnnualCreditReport.com and alert the reporting agencies about any loans or credit cards that fraudsters may have opened in their names.
The Federal Trade Commission, which listed identity theft as the top consumer complaint made to the agency for the past 11 years, also has some tips for reporting such fraud, including filing a report with the police department and placing a fraud alert on your credit reports.
The IRS has been ramping up its anti-fraud efforts over the past few years. Through a "massive national sweep" this year, the IRS caught 389 identity theft suspects, and made 109 arrests and 189 indictments. And the agency now has more than 3,000 employees working on identity-theft-related issues -- double the amount in 2011. One small step taxpayers can take to possibly speed up their investigation and take advantage of that added staff, say pros: Keep calling. "The more often you're calling in, the more they're looking at your file," says Wynn.
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