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What to do if your refund is stolen

Thieves have stepped up their efforts to steal tax refunds, and the IRS is stepping up its efforts to crack down on tax-related ID theft.

By MSN Money Partner Mar 5, 2012 10:35AM

This post is by Jonnelle Marte of SmartMoney.


As many taxpayers gather their financial documents to do their tax returns, a number of unlucky filers are finding that someone else has already filed in their name -- and walked away with their refunds.


For the 12th year in a row, identity theft topped the list of consumer complaints received by the Federal Trade Commission in 2011, with nearly 280,000 complaints, according to a report released last month. And a bigger chunk of those cases is tax related, with 24% of identity theft complaints being tied to tax or wage-related fraud, up from about 15% in 2010, according to the FTC.


For some victims, the fraud isn’t discovered until they hit the send button on their electronic tax returns -- and get a rejection note from the IRS. Other times it takes a little longer to know something is wrong, such as a long wait for a refund check that never arrives. You might also receive an IRS letter saying the income reported doesn’t match the agency's records -- a sign someone else could be using your Social Security number.


Any of this sound familiar? Taxpayers should report suspected fraud to the IRS Identity Protection Specialized Unit at 1-800-908-4490. They should hold on to any letters sent by the IRS and fill out the IRS identity theft affidavit, a form for reporting fraud or suspected fraud. Victims will also need documentation to help prove their identity, including W-2 forms, previous tax returns and a photo ID. (Post continues after video.)

Once suspected fraud is reported to the IRS, taxpayers should also check their credit reports and alert the credit-reporting agencies about any accounts or charges fraudulently made in their names. The FTC also recommends filing a report with your local police department and placing a fraud alert on credit reports.


Experts say it may take at least six months before taxpayers can get their stolen refunds back. (This writer's friend dealt with this last year and it took 11 months for her to get her refund.) Once the investigation is launched, the IRS has to confirm the person’s identity, track down the fraudster and locate the refund. There is a slim silver lining: The IRS pays modest interest on refunds that are issued late.


Identity theft has been a focus of the IRS this year. The agency has stepped up enforcement actions, including new efforts to identify false tax returns before refunds are issued. In a nationwide sweep in January, investigators took 200 actions across 23 states, including 58 arrests. The IRS also created a website section dedicated to identity theft, where taxpayers can read about enforcement actions and find tips for preventing fraud.


One key step taxpayers can take is to avoid giving personal information over the phone or via email, says Michael Bush, a director with PrivacyGuard, a company that offers identity theft production products. The IRS will never contact taxpayers via email, says Bush. And people who get calls from the IRS asking to verify information should hang up and call the IRS directly through a number posted on the IRS website. You should also be careful when choosing your tax preparer.


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