8 Steps for Cleaning Up a Tax Return Identity Theft Train Wreck

Criminals are becoming more sophisticated in identity theft schemes. Recently, several clients have received unexpected IRS letters questioning tax returns they never filed. In most cases, this indicates that a fraudster has stolen their identity to file a fraudulent tax return—disrupting their financial plans and causing unnecessary stress. That’s why staying vigilant and implementing proactive security measures is crucial to safeguarding personal information and preventing identity theft.

Beware of Fraudulent IRS Calls and Messages

A growing scam involves fraudsters posing as IRS agents, harassing individuals through phone calls or text messages. These scammers claim that the victim owes an urgent tax debt that must be paid immediately, often using intimidation tactics to pressure a quick payment. However, the IRS never initiates contact through phone calls or text messages regarding unpaid taxes—all legitimate collection notices are sent in writing. In most cases, scammers obtain personal information, such as names and phone numbers, from unrelated sources and use fear tactics to steal money.

If you haven’t yet been targeted by tax-related identity theft, consider these alarming trends:

• In 2024, the IRS Criminal Investigation unit uncovered over $9.1 billion in fraud from tax and financial crimes.
• Identity theft cases have nearly tripled over the past decade.
• A man was recently sentenced to 34 years in prison for filing thousands of fraudulent tax returns, costing taxpayers tens of millions of dollars.
• In August 2024, a new task force was created, bringing together federal and state agencies, software companies, and tax professionals to combat evolving tax scams.
• From 2022 to 2023, the Federal Trade Commission saw the largest increase in identity theft related to fraudulent government forms, including fake tax notices.

With proper precautions, hopefully you can reduce your risk of falling victim to these scams. But if you’ve already been affected, swift action is critical. Below, we’ve outlined the steps you should take immediately to protect yourself.

Stop Tax Return Identity Theft Criminals in Their Tracks!

No one wants to deal with the hassle, lost productivity, and financial cost of identity theft. And while nothing is fool-proof, there are some simple steps to help protect your identity.

1. Protect your Social Security number by limiting the times you provide businesses with it as a form of identification. In other words, make sure it’s necessary before sharing it. Additionally, do not carry your Social Security card in your wallet; leave it in a safe place instead.
2. Conduct annual reviews of your credit report and Social Security Administration earnings statement.
3. Safeguard your personal information. First, ensure that all computers and devices utilized both at home and work are using strong passwords, firewalls, anti-spam and anti-virus software, and security patches. Also, avoid disclosing personal information via phone, mail, or internet unless you initiate the contact or know the source is reputable.
4. Remember how the IRS communicates. The agency never requests personal or financial information from taxpayers by email, text messages, or social media. So if you didn’t receive it via “snail” mail, then it’s a bogus IRS communication.

8 Steps for Cleaning Up a Tax Return Identity Theft Train Wreck

Even the most vigilant sometimes become victims of tax return identity theft. For those taxpayers already “hijacked” by identity thieves using their names and social security numbers to file a false tax return, we recommend following the below steps.

1. Immediately notify federal and state tax authorities. The IRS has an Identity Theft Affidavit form, and many states have a similar process.
2. Promptly contact the major credit bureaus to place a fraud alert on your credit records.

• Equifax: www.Equifax.com, 800.525.6285
• Experian: www.Experian.com, 888.397.3742
• TransUnion: www.TransUnion.com, 800.680.7289

3. Contact your financial institutions and credit card companies as soon as possible.  Close any accounts opened without your permission or accessed by unauthorized users.
4. File a report with the local police.
5. Register a complaint with the Federal Trade Commission.
6. Notify your accountant.
7. Respond immediately to any notices from the IRS or your state taxing authority.
8. Continue filing your tax returns on time and paying taxes when due—even if you must file a paper tax return.

Apply the Brakes to Tax Return Identity Theft

Clients who receive IRS notices and contact us are often among the fortunate ones—they've identified the issue early, and acting quickly can help prevent significant financial loss due to identity theft. If you find yourself unexpectedly caught in a tax scam, don’t wait. CRI’s tax professionals are ready to help you resolve IRS complications and protect your financial future. Contact us today to get your tax situation back on track.