FRAUDULENT RETURNS
Imagine being notified by the Internal Revenue Service (IRS) that your wages will be garnished for unpaid back taxes with the customary penalty and interest. To make matters worse, a state government has contracted with a collection agency seeking back state taxes, penalties, and interest. Both the IRS and the state government have your correct Social Security number and current address. Yet as far as you know, all proper tax returns have been filed, and all taxes were paid.
In this case, the taxpayer is a citizen of the Commonwealth of Puerto Rico, but it sheds light on what mischief can be done anywhere in the United States. Because the taxpayer only had earned income in Puerto Rico, he didn’t need to file a federal return. But someone else used his Social Security number to file in the taxpayer’s name and received large refunds for whatever was put on the bogus filed returns.
The IRS has Form 14039 (Identity Theft Affidavit) for this very problem. The taxpayer filed Form 14039, including a brief description of the facts, along with a copy of his driver’s license and U.S. passport to verify his identity. When the District of Columbia came looking for the alleged back taxes, a copy of the IRS Form 14039 was sent to the collection agency. The taxpayer may need to do more work in the future, but at least he has a written documentation trail informing both the IRS and the state that he doesn’t owe any back taxes.
TAXPAYER’S IDENTITY IN QUESTION
Even if there isn’t a culprit, the threat of identity theft can affect taxpayers! One taxpayer was expecting a large refund after the timely filing of his Form 1040, but the refund was severely delayed. The IRS had sent out a letter requesting more information without explaining why the information was needed. The taxpayer responded with the requested information and thereafter made several phone calls to the IRS seeking resolution without success. One IRS representative suggested that the delay may be due to the concern over the taxpayer’s identity.
In this case, the taxpayer might have been better off if he had included direct deposit details on his Form 1040 instead of planning on a refund check from the IRS. Likewise, the taxpayer could have better managed his tax withholdings and payments to have a smaller refund. Regardless, the facts clearly showed the taxpayer is due a refund within 45 days after a timely filed tax return.
Repeated calls to the IRS and visits to the IRS website for the refund information didn’t provide any explanation for the delay or when the refund might be sent. Finally, the taxpayer contacted the Taxpayer Advocate Service (TAS), which accepted the case. Within a month or so, the taxpayer had the refund and the interest.
REPORTING ALLEGED VIOLATIONS
A taxpayer received in the mail an IRS refund check that had another person’s name on it. The taxpayer simply wrote on the check’s envelope that it was sent to the wrong address and put it back in the mail. The same check came back a few days later, however, followed the next day by an IRS letter addressed to the same name as on the refund check. At this point, the taxpayer was worried because he knew that the check didn’t belong to him, and he didn’t want any problems with the IRS. He opened the check and letter to make sure that it was only an address problem and to see if his Social Security number was on the check or letter. Fortunately, they only had his address.
For situations like this, the IRS has Form 3949-A (Information Referral). The taxpayer completed the form and enclosed the refund check and IRS letter. The taxpayer had lived at the same address for decades, so it appears to have been either a deliberate or accidental misuse of his address. The Form 3949-A was sent certified mail return receipt requested (as most correspondence with the IRS should be), thus providing a paper trail. After he had filed Form 3949-A, another letter from the IRS came to the taxpayer’s residence still showing the wrong name, but this time the IRS acknowledged the return of the refund check.
Because the taxpayer only looked at the refund check and letter briefly to ensure that they didn’t use his Social Security number, we can only guess at the reason he initially received the refund check. It does appear, however, that the improper address was used in an attempt to establish a different address for either earned income credit or filing status purposes.
GROWING CONCERN
The IRS has made tax-related identity thefts one of its highest priorities. The summary of the facts and the actions taken in these cases don’t represent all the possible ways that taxpayers can be affected by identity theft, but they provide insight into possible scenarios that may arise. Taking proactive actions—such as filing the appropriate IRS form and ensuring that there’s a paper trail—won’t eliminate all the headaches or resolve the problem completely, but they can be helpful early steps. For more information, visit www.irs.gov/Individuals/Identity-Protection.
© 2015 A.P. Curatola
March 2015
