The New Hampshire Medical Society recently issued a fraud alert to its members making them aware that a number of New Hampshire medical professionals have been the victims of identity theft involving fraudulent tax returns filed under their names. Despite increased investigation and enforcement by the Internal Revenue Service, fraudulent tax returns involving identity theft are becoming more prevalent and affecting a broad range of accountants’ clients. Typically, the fraudster obtains someone’s Social Security Number and electronically files a return early in the year. The ease of electronic filing facilitates fraud by enabling the fraudster to file and receive a refund before anyone has the opportunity to identify that the fraud occurred.
Frequently, the fraudulent return reports a small amount of income, claims an earned income tax credit, and requests a refund. By filing early in tax season, the fraudster files before the taxpayer can file. Additionally, early filing ensures that the IRS processes the fraudulent return before items such as Forms W-2 are available online, so there is no apparent mis-match between the income reported on the return and income reported to the IRS by the taxpayer’s employer. Because the fraudulent refund request does not depend on actual amounts withheld from the victim’s paycheck, this crime effects taxpayers of all income levels.
The victim of this type of identity theft frequently can learn of the problem in two ways. If the taxpayer, or you on their behalf, files electronically, the IRS will reject the filing on the basis that a return has already been filed under the taxpayer’s Social Security Number.If that happens, the taxpayer will be required to file the return on paper rather than electronically. A taxpayer might also learn of possible identity theft upon receipt of a notice from the Internal Revenue Service informing him or her that two returns were filed under his or her Social Security Number. A taxpayer who receives this type of notice should respond promptly to the IRS using the contact information in the notice. With a Power of Attorney, you can contact the IRS and obtain an account transcript, or a tax return transcript for your client for the disputed year. The transcript will provide information on what was filed with the IRS and, if the information matches the pattern described above, will be an additional indication that your client is an identity theft victim.
If you have a client who does not receive a notice from the IRS, but believes he or she is a victim of identity theft, they should contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245. Identity fraud investigations are difficult and time consuming. The IRS estimates that an investigation may take six months.
If you have a client who believes he or she may be at risk for identity theft due to a lost purse or wallet, or questionable credit card activity may contact the IRS Identity Protection Specialized Unit and request IRS action to secure his or her account. All potential identity theft victims must complete and file Form 14039 with the IRS. The IRS also suggests that an identity theft victim file a complaint with the Federal Trade Commission by calling the FTC’s Identity Theft Hotline: 1-877-438-4338, via the internet at www.ftc.gov/identity theft, or by mail at Identity Theft Clearinghouse, Federal Trade Commission, 600 Pennsylvania Avenue NW, Washington, DC 20580.
In addition to contacting the IRS, the Federal Trade Commission suggests an identity theft victim take the following steps:
- Place an initial fraud alert on your credit reports, this will reduce the risk of new accounts being opened in your name.
Experian – 1-888-397-3742 (www.experian.com)
Transunion – 1-800-680-7289 (www.transunion.com)
Equifax – 1-800-525-6285 (www.equifax.com)
- Obtain copies of your credit report, and review the report for accounts you did not open, debts you did not incur, or credit inquiries you did not authorize.
- Contact the credit fraud department for any accounts that you identify as accounts you did not open or authorize.
- Keep complete records of all actions taken, including the time and expense expended to deal with the identity theft.This information may be useful in litigation or criminal prosecution.
- File a complaint with the Federal Trade Commission at https://www.ftccomplaintassistant.gov/
- Prepare an Identify Theft Affidavit, available online at the Federal Trade Commission’s website.This document is useful in disputing new accounts opened fraudulently.
- File a police report and obtain an Identity Theft Report from the police. An Identity Theft Report is another useful piece of evidence that demonstrates someone was a victim of identity theft.
- Work with creditors to dispute fraudulent accounts.
- Contact your homeowners or general liability insurance provider to see if you have insurance coverage for identity theft.
Patrick Closson serves as vice chair of the Corporate Department at McLane, Graf, Raulerson & Middleton and as managing director of the firm’s Portsmouth office. Beth L. Fowler is an associate at the McLane, Graf, Raulerson & Middleton law firm handling individual and business tax issues under both federal and state law.
Click here to see New Hampshire Business Review article by Patrick Closson.