Tax-related identity theft happens when criminals use someone else’s Social Security number (SSN) to file a fake tax return and claim a refund fraudulently. This crime not only delays the victim’s legitimate tax refund but can also create complications in tax records that require careful resolution.

How the IRS Detects Identity Theft

The IRS has developed sophisticated technology and data analytics to detect tax identity theft. When multiple tax returns use the same SSN or when submitted information does not match IRS records, the returns are flagged for further review. The IRS may then reach out to the taxpayer by sending notices such as Letter 5071C, requiring identity verification through online tools like the IRS Identity Verification Service or by submitting specific documentation.

What Happens After Detection?

Once the IRS suspects identity theft, it takes several protective steps:

  • Issuing identity verification letters
  • Requesting verification of the taxpayer’s identity
  • Placing protective markers on affected tax accounts to block fraudulent filings
  • Investigating the fraudulent submissions and preventing unauthorized refunds

Actions for Victims

If you believe you are a victim of tax-related identity theft:

  • Respond promptly to any IRS correspondence
  • File your tax return as early as possible to reduce risks
  • Submit IRS Form 14039, the Identity Theft Affidavit, to report the issue formally
  • Regularly monitor your credit reports and IRS account for suspicious activity
  • Contact the IRS Identity Protection Specialized Unit for dedicated assistance

For example, if a criminal files a tax return using your SSN before you do, the IRS will flag the duplicate SSN at filing time. You will then be asked to confirm your identity and may need to submit Form 14039. After investigation, the IRS blocks the fraudulent return and processes your legitimate refund, although this can take several months.

Who Is Most at Risk?

Anyone’s personal information can be at risk, but taxpayers who have experienced data breaches, file from high-risk areas, or have publicly available personal information are more vulnerable. Older adults and individuals with more complex returns may face delays that give identity thieves an opportunity.

Preventive Measures

To reduce your risk of tax-related identity theft:

  • File your tax return early in the season
  • Use IRS identity verification resources promptly if contacted
  • Keep your SSN and tax information private and secure
  • Avoid sharing sensitive data over the phone or online unless you confirm authenticity
  • Monitor your IRS account and credit reports regularly
  • Use strong, unique passwords for IRS and tax software accounts

Common Misconceptions

  • Identity theft can happen to anyone, not just ‘others.’
  • Ignoring IRS letters can worsen or delay your case resolution.
  • The IRS may not immediately notify you of identity theft.
  • Filing a police report alone does not resolve the issue; coordinated efforts with the IRS are necessary.

IRS Identity Theft Resolution Process Overview

Step What the IRS Does What You Should Do
Detection Flags suspicious/duplicate returns Watch for IRS letters and notices
Verification Requests identity proof Respond promptly with requested documents
Investigation Investigates fraudulent filings Submit Form 14039 and cooperate fully
Account Protection Adds markers on your tax account to prevent misuse Monitor your IRS account and credit reports
Resolution Blocks or removes fraudulent returns Receive corrected refund if applicable

Additional Resources on FinHelp.io

Explore more about tax identity protection and related topics:

For detailed official guidance, visit the IRS Identity Theft Information page.

By understanding how the IRS handles identity theft and taking proactive steps, taxpayers can protect their refunds and personal financial information from fraudulent misuse.