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Tax-Related Identity Theft: A Tax Preparer Alert

tax preparer and clients discuss tax-related identity theftTax Preparers: Be on the Alert for Tax-Related Identify Theft

Tax preparers are in a position to help their clients in a way that may not be immediately obvious: detecting tax-related identify theft. If there is an illegal way to make money, somebody is doing it, and thieves are stealing social security numbers to file fake returns so they can get the tax refunds. They also steal Employer Identification Numbers (EIN) and submit fake W-2s as another way to cheat the government and make trouble for unsuspecting taxpayers. As you can see, this kind of fraud hits both individuals and businesses. Savvy tax preparers should be on the lookout.

Of course, it is critical that you protect your clients’ data. The IRS recommends that you use Publication 4557: Safeguarding Taxpayer Data, A  Guide for Business. This publication contains information on how to put safeguards in place, how to report incidents, laws and regulations, and standards and best practices.

Warning Bells for Individual Tax-Related Identity Theft

  • A return is rejected. The IRS rejects codes when the taxpayer’s social security number has already been used. The thief may have beaten your client to filing a tax return using your client’s social security number.
  • Your client receives IRS notices that make no sense. There are no outstanding issues.
  • Your client receives an IRS notice that an IRS notice specifies your client received payment from an employer – but the client never worked for that company.

Red Flags for Businesses Tax-Related Identity Theft

  • You find that the IRS has accepted your client’s “amended return” – but it is the first return filed for the year.
  • Your client receives IRS notices about employees who never worked for them.
  • Your client notices activity related to a business that has been closed after all account balances have been paid.

What Victims of Identity Theft Should Do in General

If your client is a victim of identity theft, the Federal Trade Commission (FTC), recommends they (or you if you have Power of Attorney) take these steps:

  1. Report the identity theft to the FTC at https://www.identitytheft.gov/.
  2. Contact one or more of the major credit bureaus to place a fraud alert on the client’s records:.
  3. Close any financial or credit accounts opened fraudulently

What Victims of Tax-Related Identity Theft Should Also Do

If a thief has been using your client’s social security number or it you think they are a victim of tax-related identity theft, it is also important to do the following:

  • Answer IRS notices immediately; they may contain directions for your client to validate their identity.
  • Complete Form 14039, Identity Theft Affidavit.This will alert the IRS for possible future illegal activity.
  • Don’t stop paying taxes or filing returns on the client’s behalf. The IRS doesn’t let anyone off the hook! It might be necessary to do this by post rather than e-file.
  • If you are not getting response from the IRS concerning this problem, contact this number for special assistance: 1-800-908-4490.

Much of the information here comes from an IRS publication,  A Tax Preparer Guide to Identity Theft. You may also want to see

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.