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What is Identity Theft?

What is Identity Theft?


Identity theft or identity fraud is a crime.  These terms are used to refer to crimes, in which someone illegally obtains, abuses, and uses another person's personal data fraudulently.  These crimes are usually committed for financial or monetary gain.  


Tax-related identity theft occurs when;


  • A taxpayer's Social Security number is used to file a fraudulent tax return, or

  • Fraudulent wage forms are created using stolen Employer Identification numbers (EIN).

Tax-related identity theft is one of the fastest-growing forms of identity theft.  The victim(s) often aren’t aware that they are victims until they file their tax return and find out that a tax return has already been filed using the primary or secondary taxpayer’s information, or the dependent’s information. 


Businesses also suffer from tax-related identity theft.  Thieves use the business EIN to create fraudulent Form W-2s to use in individual tax identity theft.  As a result, the affected business then receives notices from the IRS regarding unpaid employment taxes.  In addition to W-2 fraud, businesses fall victim to fraud schemes created by identity thieves.

 

The impact that is faced by the taxpayer(s) is immediate, as they are unable to obtain their refund if they are eligible for a refund.  The victim must go through different processes to file his return and faces at least a 180-day delay in receiving his refund.  In addition to the tax-related implications, the victim(s) must now be concerned that the theft extends beyond the tax-related theft.  


Warning Signs of Tax Identity Theft or Refund Fraud


Taxpayers usually find they are victims of identity theft when filing an electronic return.  Criminals file returns early in the filing season.  Filing early in the season allows the criminal’s returns to be accepted electronically but subsequently prevents the IRS electronic filing system from accepting the taxpayer’s legitimate return.  

In cases where one taxpayer is the victim, the spouse is affected as well if the taxpayers file a joint return.  The return cannot be accepted electronically if a Social Security numbers on the tax return has been listed on another return that has already been accepted electronically for a specific tax year.


Individuals


The following are a few warning signs that a taxpayer may be a victim of theft or fraud:


  • More than one tax return has been filed using the primary and secondary’s Social Security number.

  • The taxpayer(s) owes additional tax, experiences a refund offset, or experiences collection actions against a tax year, for which a tax return was not filed or for a year the taxpayer has already received a refund, paid any tax liability due or for which tax issues have been resolved.

  • The taxpayer finds that IRS records indicate he has received income from an employer, through which he has never received income or was never employed.

  • The taxpayer’s state or federal benefits were reduced, changed, or canceled because the state or federal agency received information, which reported an income change.

Businesses


The following are a few warning signs that a business may be the victim of theft or fraud:


  • The business tax return has been filed as an original return; however, it was accepted as an amended return (A form filed as a correction or supplement to, or replacement for, an original tax return [Form 1040X]).

  • After closing a business and paying all tax liabilities, the business owner receives IRS notices about account activity, payroll, or tax liability issues.

  • The IRS contacts the business about employees, who have never been employed by the business.  This usually implies someone created fraudulent Form W-2s using the business name and EIN.

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Cathy Fisher

Common Cents Bookkeeping and Tax Preparation

Serving Henderson, NC, Buncombe County, Polk County, Transylvania County

E: cathy@commoncentsqbo.com

P: 828-595-2835

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