In 2012, the Internal Revenue Service (IRS) established an Identity Theft Clearinghouse (ITC), which along with the Criminal Investigation (CI) Field Offices has received over 7,600 individual identity theft leads to date, involving approximately 1.47 million returns with over $6.8 billion in refunds claimed. The department carried out 1,063 identity theft related investigations in 2014, out of which 748 were sentenced to imprisonment (75% more than 2013); this is a remarkable achievement for the IRS, considering that identity theft costs them significantly.
However, even with all these measures, identity theft continues to trouble the IRS with the recent identity theft crime occurring in May when criminals managed to access close to 104,000 tax returns by using the IRS’s online Get Transcript application. This year, the IRS started issuing Letter 5071C (For more information read: Have You Received IRS Letter 5071C Dealing with Suspicion of Identity Theft?) for doubtful tax returns, and now it has announced that victims of identity theft, upon request, may obtain redacted copies (i.e. edited, or revised copies since multiple Social Security numbers could be disclosed on a single tax return) of their fraudulent return filed by the imposer, so that they could be informed about the amount of personal data stolen, and if possible, identify the source and prevent such data theft in the future.
Although, initially denied by the IRS because of privacy concerns, this move was made due to a request made by Sen. Kelly Ayotte (Rep- New Hampshire) to IRS Commissioner John Koskinen to provide copies of fraudulent returns to identity theft victims, after being informed about the issue from New Hampshire-based identity theft victims.
Some existing steps taken by the IRS in this direction are as follows:
- IRS Identity Protection PIN (IP PIN): The IP PIN is a unique six digit number that is assigned annually to victims of identity theft for use when filing their federal tax return confirming that he/she is the rightful filer.
- IP PIN Expansion: The IP PIN Expansion program is for those taxpayers who may be unaware that they are identity theft victims but the IRS identified them because their accounts have indications of identity theft.
- IP PIN Pilot: The IP PIN pilot program allows taxpayers who filed previous year’s tax return from Florida, Georgia or the District of Columbia to opt into the IP PIN program.
- IP PIN Change: Through the IRS.gov website, IRS officials will allow taxpayers who have an IP PIN requirement and lost their IP PIN to create an account and receive a new IP PIN online.
The IRS has also partnered with financial institutions to identify and stop fraudulent refunds, and plans to increase the number and efficiency of the identity theft data models and filters used to identify potentially fraudulent returns since pre-refund filters stop the vast majority of fraudulent returns. Additionally, the IRS will only allow three refund payments a year to a single financial account or pre-paid debit card while remaining refunds will be through cheques/checks sent by post to taxpayers.
That being said, highly complicated identity theft situations involving multiple issues and different tax years could take the IRS almost 4 months to resolve, therefore it continues to be the IRS’ priority as identity thieves continue to come up with new methods of acquiring information. For that reason, taxpayers are requested not to use their SSN or other tax-related documents or numbers as proof where other documents may suffice. The reason being that often the identity thieves steal information from sources outside the IRS’ system.
Taxpayers with U.S. and Cross border issues should be cautious, and keep themselves updated by following-up with their tax practitioner or the IRS.
AG Tax LLP Can Help
Tax situations can be complex and burdensome, if you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you with the right guidance to handle your tax situation.
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