Identity theft can result in tax related issues as well as financial problems, so it is important to respond immediately so that the IRS can correct any fraudulent issues. Depending on whether the taxpayer or IRS discovers the fraudulent activity determines how the case is handled.
Typically, the IRS is the first to notice if there has been identity theft and will not process the return until it contacts the taxpayer. There are three types of letters the IRS may send in an identity theft situation – Letter 5071C, Letter 4883C, and Letter 5747C. The first is the Letter 5071C which allows taxpayers to electronically verify their identity online. The Letter 4883C is sent to taxpayers and notifies them to call the IRS and verify whether they filed the tax return or not. Finally, Letter 5747C is issued for taxpayers who have experienced a data breach and need to verify their identity in person. These three letters essentially provide for an online, phone, and in person tier of identity protection.
Most frequently, if the IRS identifies the problem first, then it will send a Letter 4883C which requests verification of your identity within 30 days. These letters are issued when the IRS detects suspicious activity and are aimed to prevent any fraud. The IRS may require the proper taxpayer to file a paper return if a false return was filed on his behalf.
Taxpayers who discover the identity theft themselves without notification from the IRS should file a paper return if unable to file an electronic return. Also, the taxpayer needs to file Form 14039 – Identity Theft Affidavit and attach it to a paper return. The IRS will reply with an acknowledgement letter and then the case will be transferred to the Identity Theft Victim Assistance organization if another return has already been filed on the taxpayer’s behalf. This organization works to correct any fraudulent returns filed as well as correct any personal information that is incorrect and update the taxpayer’s tax records to remove the fraudulent return.
Note, the IRS will mark a taxpayer’s information with having suffered from identity theft in order to prevent future issues. The IRS may also place taxpayers in the Identity Protection PIN program to provide another level of security to the taxpayer’s tax records. The taxpayer will receive a new IP PIN that must be entered on the appropriate year’s tax return and this number will change from year to year.
This article has been prepared by John McGuire. John is a tax attorney at The McGuire Law Firm assisting individuals and business with various IRS issues, tax planning and other taxation matters related to partnerships, corporations and individuals. Feel free to contact The McGuire Law