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Did the IRS Freeze Your Refund?

  • 13 October 2015
  • Author: Cari Holbrook
  • Number of views: 5883
Did the IRS Freeze Your Refund?

During the latest 2014 tax filing season, the IRS froze the returns of 1.6 million possible tax ID theft victims. While it’s certainly better to be safe than sorry, what has happened after the returns are frozen may be considered a crime itself. Taxpayers who received letters from the IRS stating their returns were frozen were directed to a Taxpayer Protection Program (TPP) line to confirm their identities. However, the IRS answered as few as 10 percent of the phone calls made to the call line during their busiest times.

A taxpayer may be unaware that a possible ID theft has happened until their tax return is rejected. Tax ID theft happens most often when a stolen Social Security number is used to file a tax return claiming a fraudulent refund (the refund is sent to the thief’s address, not the taxpayer’s). A stolen EIN can also be used to create false W-2 forms.

What do you do if you become a tax ID theft victim?

  • Be proactive. As always, it’s best to act immediately when you receive any letters from the IRS (keep in mind the IRS will always contact you via mail). You may be asked to complete IRS Form 14039, Identity Theft Affidavit, which may be available for you online at IRS.gov. In addition, it is advised that you also file a police report.
  • Be patient. The IRS states that a typical case can take 120 days to resolve. And with the current response issues, it may be more (see last month’s blog post, “Have a Question for the IRS? Hang On!”) Thorough financial planning can ensure that your refund isn’t something that you’re counting on in order to pay your necessary expenses. After all, while taxes are a certainty in life, refunds are not.
  • Be cooperative. The IRS is offering certain taxpayers the opportunity to opt in to an Identity Protection PIN (IP PIN) program. According to the IRS, these taxpayers may be unaware that they are identity theft victims but the IRS identified them because their accounts have indications of identity theft. If you’re asked to participate in this or a similar IRS program, take it seriously.
  • Investigate further. The IRS recently decided to provide identity theft victims with copies of the fraudulent tax returns in order for the victims to better understand the extent of the ID theft. However, it’s up to you to request a copy of the fraudulent return. You may need a taxpayer advocate to help you. Read our latest featured article “Growing Business, Mounting Employment Taxes: A Bankler Case Study” to see how using a tax professional to communicate with the IRS for you can be a good idea.

While there are certainly kinks in IRS efforts to combat tax ID theft, the agency is making progress. In fiscal year 2014, IRS Criminal Investigation enforcement efforts resulted in 748 sentencings, an increase of 75 percent from the year before. The incarceration rate rose 7.1 percent to 87.7 percent. If you have any questions or concerns about your own tax situation or vulnerability to tax ID theft, contact us.

Image Copyright: whitestar1955 / 123RF Stock Photo

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