Tax attorneys may be called upon to help clients if they are victims of identity theft such as refund theft. Identity theft is becoming more widespread and potentially very damaging to taxpayers. The IRS has responded to the threat by establishing several departments and pathways for tax representatives and their clients to file identity theft claims to seek relief.
What is the Definition of Identity Theft?
Identity theft occurs when someone uses another person’s personal information, such as name or Social Security Number (SSN), without permission, to commit fraud or other crimes. There are several different types of identity fraud. The response by the taxpayer’s representative to each type of identity theft may vary depending on the unique circumstances involved. Refund theft occurs when an identity thief attempts to claim the taxpayer’s tax refund. In the typical refund theft situation, an identity thief uses a taxpayer’s SSN to file a false tax return and claim the refund associated with it. Often, the identity thief claims the refund long before the taxpayer even files his or her tax return, leaving the taxpayer blindsided when the thief has claimed the refund and “moved on.” The second type of identity theft is employment theft, which occurs when the identity thief uses the taxpayer’s SSN to get a job. The thief’s employer then reports income and wages to the IRS under the taxpayer’s SSN. When the taxpayer files his or her tax return, it will appear as though they did not accurately report all their income on their Form 1040.
What to do if a Client is a Victim of Identity Theft
If your client is a victim of identity theft, you will have to follow particular steps to file an official claim for relief with the IRS.
1. Investigate: The first thing you should do is investigate the client’s tax situation and possible identity theft. This step involves requesting transcripts and account-related information from the IRS in order to review the information for unusual third-party activity. In order to gain authorization to request transcripts and other account-related information surrounding your client’s case, you will need to supply the taxpayer’s full name, identification, address and taxpayer, as well as a completed Form 2848 or Form 8821. In your correspondences with the IRS, you can request account transcripts, wage and income transcripts, and return transcripts for a number of years. You should request these transcripts for the current year and at least three previous years. Once you receive the transcripts, you should review them for any fraudulent third-party activity.
2. Contact the IRS: If your client is a victim of identity theft, then you should contact the IRS Identity Protection Specialized Unit (IPSU) toll free at (800) 908-4490. The IPSU is responsible for monitoring the taxpayer’s account but does not actually take corrective action to address the issues surrounding identity theft.
3. Once you contact the IPSU, the case may proceed in several directions depending on the taxpayer’s situation. If the identity thief has not created a problem for the taxpayer yet, then the IPSU creates an identity theft marker to the taxpayer’s account to keep track of potential impact on the taxpayer. If the identity thief has created tax problems for the taxpayer, the IPSU refers the taxpayer to the appropriate IRS unit via a Form 14027-B, Identity Theft Case Referral. The power to resolve the tax problems lies not with the IPSU but with the appropriate IRS unit.
4. Review any notices that your client has received from the IRS: If the client has received a notice from the IRS as described above, you should contact the IRS unit that sent the notice. The unit that generated the notice is also responsible for solving the problem and adjusting the taxpayer’s account. To address the identity theft, the taxpayer must submit a Form 14039 to the IRS. This form is available at http://www.irs.gov/pub/irs-pdf/f14039.pdf and is essential for the IRS to process the taxpayer’s claim for identity theft relief. This form has three components:
5. Reason for filing the form: requires the taxpayer to list the reason for filing the form. Did the taxpayer already receive a notice from the IRS and is aware that he or she is a victim of identity theft? Or does the taxpayer believe that he or she is a victim of identity theft which may impact the taxpayer’s tax returns in the future?
6: Taxpayer information: One must list the taxpayer name, address, SSN, and contact information.
7. Required documentation: The IRS requires that this form be submitted along with documentation verifying the identity of the taxpayer, such as passport, driver’s license, social security card, or other valid U.S. Federal or State government issued identification.
Finally, you should review the client’s account for any suspicious activity after the conclusion of the identity theft case. The taxpayer’s return should also be filed with the IRS-provided identity protection personal identification number (IP-PIN).