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A Key Step that ID Theft Victims May Overlook

Background checkThis year, taxpayer identity theft took a maliciously clever turn: phony tax returns were filed that looked very much like the taxpayers’ previous years’ returns. Standard pattern deviation software would not catch this type of filing. How could this happen?

It turns out that rather than just using stolen names, birthdates, street addresses and Social Security information to file tax returns with made-up numbers, criminals used the stolen information to access the taxpayers’ previous returns to make up believable numbers to file for tax refunds. The criminals were successful in about 100,000 out of approximately 200,000 attempts to acquire taxpayer information on the Get Transcript section of the IRS website, which requires other personal verification questions that only the taxpayer is supposed to know.

While the number of affected individuals (.07% of taxpayers) is relatively small considering the over 145 million individual income tax filings yearly, multiple years per person appear to have been downloaded, and to the people affected, being victimized is very stressful. The IRS will send letters to about 200,000 affected taxpayers, who, even if they were unaffected this tax season, may be at risk next tax season or in other areas of their identity like potential credit theft. What should a CPA do when a client gets a letter regarding identity theft?

When a client’s identity is stolen (or yours), you may find yourself having a lot of work to do in a very short time to minimize the damage. Nearly all credible articles that address identity theft recommend that you report the theft, or even the suspected theft, to the local law enforcement authorities. Upon completing a report, the victim should get a case number. This case number is important because it will be requested by the IRS, the victim’s insurance company if applicable and, possibly, credit reporting agencies. While identity theft is becoming more common (and arguably nearly routine in some places like Florida), the experience level of local law enforcement varies. Some authorities will offer to run a criminal record check on the victim, but if the authorities do not, consider asking for one.

Here’s the thing: if I stole your driver’s license and got caught while, say, driving under the influence, the identification that I could pull out might not be my own. It could be yours. So, if your identity has been stolen, it’s possible that it was used to create other forms of identification like licenses, credit cards, Social Security cards, etc. that the thief may turn over if caught committing a crime. The false criminal record may be cleared, but this process is complicated and time consuming, perhaps affecting the victim’s ability to get or hold a job, rent an apartment or get new credit. You will sleep better knowing that your name is clear of criminal charges; thus, you should ask the police to run a criminal record check if you ever suspect you are the victim of identity theft.

Also, while experts are sending you to the police, occasionally the authorities are the problem. For example, a Tax Notes Today article reported that a New York police officer and registered return preparer since 2008 pled guilty to identity theft tax fraud (2013 TNT 154-19). Another officer was charged with identity theft in Florida in 2013. And, in May of this year, an IRS special agent in Alabama was indicted for using names, Social Security numbers and other personal information obtained from his job at the IRS to file tax returns with an outside partner.

The point of these examples is not to dissuade the victim from filing a police report. The victim will need the help of authorities to minimize the damage of the identity theft. The point of these stories is to mentally prepare the victim for the probability that identity thefts can happen from surprising sources and a long, unsettling process sometimes follows the discovery of identity theft. That is, the victim should “prepare to be surprised.”

The bottom line: When first learning of an identity theft, victims should file a police report, but remain aware that the damage may not be contained and may continue to come from unsuspected places. Victims should also ask that the local police run a full criminal records check to make sure that the victim’s name has not been used falsely to commit a crime.

For more guidance, resources and the latest news on identity theft, visit our Identity Theft Information and Tools page.

Dr. Betty Thorne is Professor of Statistics and Director of Undergraduate Business Student Success in the School of Business Administration at Stetson University, DeLand, FL. She is Stetson University's 2015-2016 Christian R. Lindback Chair of Business Administration, a position of honor and distinction. Dr. Thorne has been a victim of identity theft and identity fraud.

Valrie Chambers, CPA, PhD, is an Associate Professor of Accounting at Stetson University in Celebration, FL. She has over a decade of public accounting experience as owner/partner-in-charge of a CPA firm in Houston that specialized in advising small business owners. Dr. Chambers has been published in numerous journals and received the Texas Society of CPAs Outstanding Accounting Educator Award for mid-sized Texas universities in 2012. She has volunteered for the AICPA and the IRS’ Volunteer Income Tax Assistance in Corpus Christi.

Background check courtesy of Shutterstock.


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