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Fraud & Identity Theft

How Does the IRS Verify Your Identity?

Tax season is right around the corner, which means fraudsters may be working overtime to cash in on a scam known as tax identity theft. It typically works like this: Someone obtains your personal information, uses it to file a tax return in your name and then collects your tax refund—all without your knowledge or consent. The fraud often comes to light when the victim is unable to file a legitimate tax return because one has already been filed under their Social Security number (SSN). In 2019, about 137,000 taxpayers submitted an IRS identity theft affidavit, which is a form that's filed with tax returns when someone is the victim of tax identity theft.

If the IRS suspects identity theft when reviewing your tax return, they may request that you verify your identity before they process it. But how can you tell if the request is coming from a real IRS representative and not a scammer? Read on to understand how the IRS verifies your identity. We'll also unpack how to protect your identity and what happens, from a tax perspective, if you're the victim of identity theft.

How the IRS Will Verify Your Identity

It might so happen that the IRS receives a tax return filed under your name and SSN that raises some red flags. If they suspect fraudulent activity, they'll send a letter asking you to confirm that you indeed filed the return. This could prevent the fraud from going any further, and also provide a heads up that you might want to check your credit report and financial accounts for indications of other fraudulent activity.

The letter you get from the IRS will provide specific direction on your next steps, which may include securely verifying your identity online. This will require you to provide the following:

  • Your personal account number from a credit card, mortgage, student loan, car loan, or home equity loan or line of credit
  • A mobile phone number that's tied to your name
  • The letter you received from the IRS
  • The income tax return that corresponds to the letter
  • The mailing address associated with your previous year's tax return

In some cases, you'll be instructed to call the IRS so the agency can verify your identity over the phone. If they're unable to do so for some reason, you can gather up the necessary documents and do it in person at your local IRS office.

Signs You Might be Getting Scammed

It isn't unheard of for fraudsters to pose as IRS officials in an attempt to obtain money or personal information from victims. If someone who says they're with the IRS contacts you by email, phone or in person, stay skeptical—any initial correspondence from the IRS will show up in your mailbox. The IRS may follow up with you via other communication methods but not without sending written notice first. If you receive a phone or email message asking you to key in your SSN or the PIN code you use to file your taxes online, don't do it.

Threats are another warning sign of foul play. Neither the IRS nor the Social Security Administration will ever threaten to cancel or suspend your SSN. They also don't use intimidation tactics, like saying they'll involve the local authorities or other law enforcement if you don't comply. Another important thing to remember is that the IRS will never ask for payment by way of wire transfers, prepaid debit cards or gift cards. Instead, they'll direct you to make payments to the United States Treasury.

What to Do if You're Already the Victim of Identity Theft

Identity theft comes in all shapes and sizes. Overall, tax fraud from identity theft is not as common as other types of fraud, such as unauthorized credit card charges or someone acquiring new credit with your identity. No matter the type of fraud you've fallen victim to, however, it's important to take immediate steps to address it.

If you discover you've been victimized since filing your last tax return, you'll want to notify the appropriate parties to help clear up issues and minimize future headaches. You might want to:

  • Alert the IRS immediately using this form as it can help put a stop to future tax ID fraud.
  • File a report with the Federal Trade Commission (FTC).
  • Contact any relevant government agencies if you also pay state and local taxes.
  • File a crime report with local law enforcement. This isn't required by the IRS or FTC, but it could be good to have a copy of your report on hand when clearing your name. Your report could also aid in the law enforcement investigation and prosecution of whoever stole your identity.

How to Protect Your Identity Going Forward

Tax identity theft underscores just how important it is to keep your personal information safe from prying eyes. If you've been the victim of this type of fraud, consider taking the following steps:

  • Safeguard your credit. If identity thieves have their hands on your private information, a fraud alert or credit freeze can help protect you from further damage. A credit freeze essentially blocks potential new creditors from pulling your credit report—and, in turn, approving new accounts in your name—until you unfreeze your report. Alternatively, a fraud alert asks lenders to verify your identity before issuing a new loan or credit card in your name.
  • Protect your private information. From your SSN to your digital banking passwords, keeping sensitive information safe is critical. When shopping online, avoid public Wi-Fi networks, which may have been compromised by hackers. If you must use a public Wi-Fi for anything sensitive, using a virtual private network (VPN) can make it harder for fraudsters to steal your information. For all your online accounts, use a password that's secure and unique—a password manager can help you keep track.
  • Stay vigilant of scams. Be wary of any phone calls or emails that request personal information. If you're questioning their legitimacy, reach out to the organization directly to verify that the correspondence is real.

The Bottom Line

Tax identity theft can go hand in hand with other types of fraud—like someone using your personal information to open phony accounts in your name. Signing up for free credit monitoring with Experian can help you spot fraudulent activity so you can swiftly take steps to correct it. Experian IdentityWorks℠ is another suite of services that can help you protect your identity. When it comes to identity theft, knowledge really is power.