Recent Posts:What to Do if Your Client is a Victim of Tax-Related Identity Theft(From AccountingToday - March 16, 2016)
If you’re in the tax preparation business, chances are you’ve had a client experience tax-related identity theft. With the 2015 tax season in full swing, there is no doubt this trend is continuing. Most states have slowed the state refund process as they work to combat identity theft, and the IRS has issued numerous alerts on tax scams that have taxpayers wary. The most recent alert by the IRS indicates a 400 percent increase in email tax scams this filing season over the last filing season. With so many issues to tackle, the process of assisting victims is a slow one. As of May 2015, the IRS had 671,773 open identity theft cases, with just over 3,000 trained employees dedicated to working directly on these type cases while in the process of training 35,000 employees to be on the front-line to troubleshoot and direct victims in recognizing and reporting identity theft. Further, according to a Treasury Inspector General for Tax Administration audit, the IRS is taking an average of 278 days to resolve identity theft cases rather than the 180 days they have publicized. From understanding how tax-related identity theft is identified to the ways it can be reported, it’s important that tax practitioners know how to effectively and efficiently guide clients through the process to best support them in their time of need.
Identifying Tax-Related Identity Theft
1. Identity Theft Filters – At Filing
2. Suspicious EIN listings – Post Filing The other way potential tax-related identity theft is uncovered is if a taxpayer suspects it. Suspicious scenarios include:
• Questionable items on a client’s tax account transcript It’s also important to note that most victims of tax-related identity theft are children, the elderly, deceased individuals and people who are in prison. Why? Because these individuals may not have a filing obligation or file a tax return, so the thief’s tax return is the first one filed with the IRS—and there is no duplicate return or Social Security number to kick out the fraudulent return.
Reporting Tax-Related Identity Theft If you or your client suspects they are a victim of tax-related identity theft, they should contact the Identity Protection Specialized Unit (IPSU) at (800) 908-4490. If they are unable to reach the IRS by phone due to disconnects or long hold times, instruct them to prepare and submit Form 14039 with supporting documentation and mail or fax it accordingly. If all else fails, direct them to contact the Taxpayer Advocate Service (TAS) by visiting their local office or calling National TAS at (877) 777-4778.
Combating Tax-Related Identity Theft Practitioners can determine if one of these markers is on a client’s account via tax account transcripts requested through TDS or directly from the IRS through the PPS line. On the transcript, the identity theft indicator is marked by Transaction Code (TC) 971 Action Code 522 and various tax administration codes that describe where the IRS is in the resolution process. Additionally, starting this year, the IRS is requiring the use of Identity Protection PINs for all Social Security numbers with an IP PIN requirement, regardless of whether the Social Security number is entered for a primary, spouse, or dependent/qualifying individual. IP PIN entry is required on Form 1040, Form 2441 and Schedule EIC. An IP PIN for a dependent will only be issued if the dependent’s social security number has been used as a primary or secondary on another tax return. Otherwise, the IRS will not issue IP PINs to dependents. Additionally, numerous data elements from tax return submissions will be shared with the IRS and states by tax software companies. Tax software companies are also enhancing the identity requirements and validation procedures incorporated into their software in an effort to further combat tax-related identity theft.
Requesting a Copy of the Fraudulent Return Due to federal privacy laws, the victim’s name and Social Security number must be listed as either the primary or secondary taxpayer on the fraudulent return; otherwise the IRS cannot disclose the return information. For this same reason, the IRS cannot disclose return information to any person listed only as a dependent.
Representing a Victim of Tax-Related Identity Theft
1. Confirm the identity theft incident with your client. Because there is no doubt that these types of crimes will continue for the foreseeable future, it is important for practitioners to understand how best to serve these clients in their time of need. To help prevent and detect identity theft early on in all its forms, assist your client in adhering to these guidelines:
1. Review and read statements carefully noting any suspicious items.
07/05/2016
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