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Tax identity theft: A horror story

Shutterstock_676365463Halloween used to scare me. I was sure that monsters — specifically zombies — were out to get me. But I’m not afraid anymore because I faced down a nameless ghoul who did more actual harm to me than any imaginary monster could ever do.

It all started one fateful day when an identity thief used my name, Social Security number and birth date to file a fraudulent tax return, netting the fraudster a $4,000 refund. While it was an excellent payday for the thief, it was the start of some major headaches for me.

By the time I found out what happened, I was on the hook for more than $14,900 (including supposed unpaid taxes, penalties and interest). Fresh out of grad school with high student loan debt, rent and health insurance payments, I was completely unprepared to weather this storm.

Here’s the scoop on how everything went down and the things I did — and didn’t do — to contribute to the problem. Share this cautionary tale with your clients. You don’t want them to make the same mistakes I did.

The Internal Revenue Service comes knocking.

Once the IRS figured out the scam, it took steps to get the money back. It sent out a Notice CP-2000, but the letter never got to me because the identity thief used a different address to claim the fraudulent tax refund.

I found out about this via a Notice CP49, which came after I filed a genuine tax return sometime later. (Now that the IRS had my real address, it knew where to go to get the bill paid.) The Notice explained how much I owed, and that the IRS was applying that year’s overpayment to the bill, leaving me with $13,700 due: Immediately.

The next few days were filled with phone calls to the IRS, my parents, my brother and anyone I could think of to help me (with one exception, but more on that in a minute). Then, I filled out Form 10439 Identity Theft Affidavit, reported the crime to the Federal Trade Commission and local police, reviewed my credit reports and did everything I could think of. (What I wouldn’t have given for this identity theft recovery checklist!)

Then I waited. And while I waited, I tried to figure out how this happened to me and if I could’ve stopped it earlier. Spoiler alert: I made some big mistakes. And yes, I could’ve avoided them.

The plot thickens.

While this issue festered and grew, I started seeing signs someone had gotten ahold of my personal information — such as a collection call for a debt that wasn’t mine. But I didn’t see these as major red flags because I wasn’t paying attention to the subtle symptoms of identity theft.

It shouldn’t come as a surprise, then, that my lack of attention to detail was part of what got me into this mess in the first place. Mistake number one was not prioritizing my taxes while in grad school. To be honest, I didn’t really think about them. For the first time, neither did my parents. Mistake number two was failing to check in with them. As it turns out, since they were no longer supporting me, they didn’t claim me on their tax return that year. Had I realized this and filed a genuine return, the identity thief wouldn’t have had an opening.

Although there were steps I could’ve taken to avoid this situation, it’s important to remember that this one fraudulent tax return isn’t the whole story. My identity and private data were stolen and used to file the return. I still don’t know what else this information was used for, and I probably never will. 

The monster is eventually defeated, but…

Eight months after I filed the affidavit, the IRS unceremoniously sent me a check for my refund. Soon after, an IP PIN followed. The case was closed, and I was in the clear. With that relief came a great appreciation for the work done by the IRS to ensure we all get a fair shot.

But getting to the end of my tax identity theft horror story took months of tears, uncertainty and feelings of powerlessness while I tried to prove my identity, not knowing if I would be on the hook for a tax bill that wasn’t mine. I realize now that I could have saved at least some of the heartache if I’d contacted a CPA for help the moment I received the Notice CP49. Not only could a CPA have helped me remedy this issue, she would’ve been able to address the underlying identity theft that caused the problem in the first place.

Identity theft is an ongoing national crisis. According to a recent AICPA survey, 48 percent of U.S. adults think it’s at least somewhat likely identity theft will cause them financial loss in the next year, and 6 percent report that they or family members have had someone obtain a tax refund in their name. It’s possible that one or more of your clients will come up against these bad guys — if they haven’t already. Don’t let them battle this alone. Be by their side, or better yet, help them avoid it altogether.

One of the benefits of an AICPA membership is all the resources, and we have excellent tools, articles, checklists and more that address cybersecurity, tax identity theft and other issues. Don’t let your clients turn out like me. Talk to them about protecting themselves from the REAL things that go bump in the night – before it’s too late.

Allison Carter Fanney, Communications Manager — Tax, Association of International Certified Professional Accountants

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