The Terrible Reality of Tax Identity Theft

An unfortunate by-product of living in an age when we're always connected and always on is that the information we think of as private is not always as private as we'd like it to be. It's not simply the ease with which hackers can now snatch our information from thin air; it's also trendy. Crime begets crime, and this is evidenced by the increasingly surging numbers of amateur scam artists who have been contributing to the billions of dollars stolen from the U.S. Department of Treasury each tax season. What can we, the average taxpayers, do to make our identities unassailable to even the most sophisticated grifter? Sadly, not much.

You can shred your important documents, particularly those that carry personal information, including – but not limited to – your Social Security number. You can check and monitor your credit for fluctuations, misreporting and red flags. You can even put a lock on your mailbox (seriously) to prevent the bolder thieves from swiping important info delivered from the post office. You can and should do your due diligence in keeping yourself safe and sound at all times. But even taking all of these precautions won't make your identity entirely impregnable. The next question, then, is what do you do when your life has been breached (and what will that look like)?

The Inevitable Solution

You're going to need a solution eventually, it's really just a matter of when. How will you know? Here's an increasingly familiar and often terrifying scenario: You prepare your taxes in March, fully expecting a sizeable refund after carefully sorting out your eligible deductions and maximizing every credit you qualify for. You keep an eye on your bank account, ever watchful for that direct deposit from the Treasury. Instead, you open your mailbox one day to find a letter from the IRS which tells you your refund can't be processed – because it's already been paid.

Identity thieves who target taxpayers move quickly, early in the year, before you even have a chance to file your return. He or she obtains your Social Security number and other necessary information, files a bogus return and collects the automated refund that's sent out soon thereafter. Unfortunately, the IRS computer filters don't catch many of the fake returns filed each year, which is why you're likely to discover the problem when you attempt to file. That's not to say that you won't get your return, eventually, but it will take time, effort and a great deal of patience.

When you alert the IRS that you believe you've been the victim of identity theft, you may be asked to fill out a police report. Even having this, though, will not prevent the IRS from scrutinizing the information and your actual return to verify that everything is correct. Be ready to spend a great deal of time on the phone with the IRS, and not always with the same person.

The Fallout from Tax Fraud

Apart from straightening out your return or obtaining your refund, there are other complications to prepare for. First, you can expect future returns to be inspected closely and you may be given a special identification number to reduce the chance of additional fraud incidents. It's also important to remember that once your identity has been exposed, your chances of experiencing similar situations again go up considerably.

Perhaps your best course of action if your identity is compromised is to consult with a licensed tax professional. He or she can prepare any future tax returns to ensure everything is up to compliance and correct (remember, the IRS will be watching every one you file). Also, if you're embroiled in a debate with the IRS and aren't getting anywhere, a licensed tax professional can step in take over. Hopefully, you'll never be the victim of identity theft, but if you are, you don't have to handle it alone.

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