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ASK THE EDD ATTORNEY – IRS IDENTITY THEFT: HOW BAD IS IT AND WHAT IS THE IRS DOING ABOUT IT?

By Robert S. Schriebman
November 6, 2015

Introduction

A close friend called to tell me that he received a call from a purported IRS agent threatening him with harsh consequences if he did not immediately pay a bogus tax bill that he knew he did not owe. The caller demanded personal information with repeated attempts to find out his social security number. This prompted me to do some research into the current status IRS identity theft and the steps that the IRS is currently taking to fight back. I was encouraged to learn that about 75% of all IRS identity theft attempts have been blunted by recent IRS defensive strategies. I thought you would like to know the current extent to IRS identity theft, what the IRS is doing defensively and what you can do to protect yourself according to recent IRS official publications.

IRS Identity Theft - How Bad Is It

IRS identity theft is a growing business. While 2015 numbers are not yet in, IRS Commissioner John Koskinen announced that close to 10 million Americans were identity theft victims in 2014. This cost the Treasury Dept. about $5 billion of our hard-earned tax dollars. The number of victims is growing exponentially from almost 2.5 million taxpayers in 2013. The number in 2012 was about half of that amount. The rate of identity theft is almost 10 times the number it was in 2010.

Identity theft occurs when the crooks use an individual's social security number or a business' identification number to commit 2 major categories of fraud:

  • Refund claim identity theft - filing a phony tax return claiming a phony refund
  • Payroll tax identity theft. These are job related ploys.

A recent IRS publication discussed the horrors of the 2013 filing season. Over 5 million phony tax returns were filed demanding $30 billion in refunds. Thanks to efforts installed by the IRS, $24 billion or 81% of those efforts were caught. However, it still cost us $5 billion. This is major big business.

What Is The IRS Doing About the Problem?

On October 21, 2015 the IRS issued press release 2015-117. It spoke of efforts by the IRS, state tax administrators and leaders of the tax industry in their efforts to expand and strengthen protections against identity theft refund fraud for the 2016 filing season. The group is known as the Security Summit. IRS Commissioner Koskinen said, "We are breaking new ground in the battle against identity theft. Taxpayers will have more protection than ever when they file their tax returns."

To date, 34 state departments of revenue and 20 tax industry members have signed memorandums of understanding regarding roles, responsibilities and information sharing, with more expected to sign later. The teams have focused on a number of areas including improved validation of the authenticity of taxpayers and information included on tax return submissions, increased information sharing to improve refund fraud detection and expand prevention, as well as more sophisticated threat assessment and strategy development to prevent risks and threats. There are more than 20 new data components that will help detect possible identity theft. The data will be submitted with the tax return transmission for the 2016 filing season, a step that will help detect and prevent refund fraud on both the federal and state level.

What exactly the specifics of these efforts will be remains largely a military secret. However, for those taxpayers using tax software, there will be stronger steps to protect accounts by creating stronger verification of customers. This effort will include creation of security questions and device identity recognition at the time of logon - these steps are currently being used in the financial sector.

What Can You Do to Protect Yourself?

The first things recommended by high ranking IRS officials are to review monthly bank statements and obtain a credit report at least once a year. These proactive measures will allow you to find fraudulent activity as soon as it begins. Here are a few other tips:

  • Buy a paper shredder and use it.
  • Secure wireless networks.
  • Frequently change your passwords.
  • Check into identity theft protection services such as Lifelock and IdentityForce. Get information from them on how further to protect yourself.
  • If you receive a suspicious email see if it followed by ".gov." If not, it's not an official government email. IRS does not yet use email.
  • Avoid altogether or minimize on-line banking and shopping. Remember you are sending data over the airways and that can be intercepted.
  • At a gas station walk in and hand the attendant your credit card instead of paying at the pump.
  • At a restaurant, bar, etc., take the carbon copy of your credit card imprint. Although most restaurants, etc., no longer use the hard copy - carbon paper receipt, some still do.
  • Make sure your wireless networks are secured.
  • Put passwords on your credit cards, and other accounts that you have. Change the passwords frequently.
  • If you have children using computers or credit cards, pass this advice along to them and assist them in changing passwords and securing networks. Remember, crooks can get to you through your children.

Signs You Are The Victim of Identity Theft

According to the Treasury Department's Taxpayer's Advocate Service (TAS) there are several primary ways you can find out if you are a victim of IRS identity theft.

  • You attempt to file your return electronically seeking a refund, but the IRS informs you that you filed an earlier return and the refund has been paid.
  • The IRS sends you a letter demanding additional taxes because you failed to include income from a job you never had.
  • You receive a letter from the IRS Collection division stating that you have an unpaid deficiency and collection action is going to be taken against you unless you promptly pay the bill. But, make sure the letter is an official IRS notice. If you are not sure, contact a tax professional to be safe and sure.

What Can You Do If You Suspect You Are as Victim of Identity Theft

  • Notify local law enforcement
  • File a report with the Federal Trade Commission (FTC)
  • Order a copy of your credit report
  • Go on the IRS website, obtain form 14039 Identity Theft Affidavit, complete it and send it to the IRS.
  • The IRS has an Identify Protection Specialized Unit (IPSU). Call them at 800.908.4490
  • Be proactive - always challenge a debt that is not yours. Don't just pay it thinking you cannot fight "city hall!"

Conclusion

Identity theft is big business. It's a growing business. Be proactive. Don't just pay your bills, check them for accuracy. Order a copy of your credit report every 4 months or so and check it thoroughly for errors. I doubt if the RS will ever be free from those who lay awake at night trying to make their living by stealing. Until the IRS puts into place those systems that will eventually minimize this theft, its business as usual. The thieves are not going away any time soon.

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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See "California Tax Collection Practice and Procedures" and "California Taxation Practice and Procedure", both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, "IRS Tax Collection Procedures - A Manual for Practitioners" published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, "IRS Tax Collection Procedures - A Manual for Practitioners" published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See "California Tax Collection Practice and Procedures" and "California Taxation Practice and Procedure", both published by Commerce Clearing House.

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