Identity Theft and Tax Fraud: How to Protect Your Return

Why tax-related identity theft matters

Tax-related identity theft occurs when a criminal uses your personal information—most commonly your Social Security number (SSN)—to file a fraudulent federal or state tax return and claim a refund (IRS: Identity Theft) (https://www.irs.gov/identity-theft-fraud-scams). Beyond the immediate loss of refunds, victims face time-consuming disputes with the IRS, delayed legitimate refunds, potential impacts on credit, and the administrative burden of proving identity.

In my work as a CPA helping clients recover from identity theft, I’ve seen how quickly a single exposed SSN can trigger a chain of problems. The good news: many measures are effective at preventing fraud or reducing damage when it happens.

How tax-related identity theft typically works

• Data collection: Criminals obtain personal information through data breaches, phishing emails, social engineering, unsecured Wi-Fi, mailbox theft, or buying data on the dark web.
• Return filing: Using the victim’s SSN and fabricated wage documents (e.g., fake W-2s), the criminal files an early tax return to claim a refund. Since the IRS processes many returns automatically, the fraudster’s return may be accepted before the real taxpayer files.
• Detection and consequences: Victims learn of the problem when their e-file is rejected as a duplicate, or when the IRS sends an identity verification notice or a message that a return was already filed.

Key IRS cues include identity verification letters such as Letter 5071C and e-file rejections that indicate a duplicate SSN. When that happens, follow the IRS instructions and be prepared to submit Form 14039 (Identity Theft Affidavit) if requested (IRS: How to Report Identity Theft — https://www.irs.gov/identity-theft-fraud-scams).

Common warning signs

• You receive IRS mail saying a return was filed in your name but you didn’t file.
• Your e-file is rejected because your SSN matches a previously filed return.
• Unexpected IRS notices about wages you didn’t earn.
• New accounts or credit inquiries you don’t recognize.

Preventive measures: an actionable checklist

1. Request an IRS Identity Protection PIN (IP PIN)

• An IP PIN is a six-digit number the IRS uses to confirm your identity when you file (IRS: IP PIN). The IP PIN significantly reduces the chance a fraudulent return will be accepted because it must be entered on the return. The IRS has expanded the IP PIN program and provides guidance on obtaining and using it (IRS — https://www.irs.gov/identity-theft-fraud-scams). See our guide on the IRS Identity Theft Protection PIN for more details (FinHelp: IRS Identity Theft Protection PIN).

1. File early

• Filing your return as soon as you have the necessary documents reduces the window in which a criminal can file a fraudulent return under your name. Early filing is one of the simplest and most effective defensive moves.

1. Freeze or monitor your credit

• Place a credit freeze with the three major credit bureaus (Equifax, Experian, TransUnion) to prevent new accounts from being opened in your name. At minimum, set up credit monitoring if a freeze isn’t practical.

1. Use strong accounts and multi-factor authentication (MFA)

• Protect online accounts that hold financial or tax information (email, bank, tax software) with unique passwords and MFA. Password managers can help generate and store strong passwords securely.

1. Secure physical documents and mail

• Shred old tax returns, wage statements, and anything containing SSNs. Use a locked mailbox or request mail hold/delivery instructions when away.

1. Guard against phishing and fraud calls

• The IRS does not initiate contact by email, text, or social media to request personal information. Be skeptical of unsolicited messages claiming to be the IRS or your tax preparer. See our piece on recognizing scam notices vs. genuine IRS correspondence (FinHelp: Recognizing Scam Notices vs. Genuine IRS Correspondence).

1. Verify tax preparers and secure e-file access

• Use reputable, credentialed tax preparers (PTIN, CPA, EA) and do not share passwords or allow permanent e-file access unless needed. Review your preparer’s security practices.

1. Keep software and devices updated

• Ensure your operating system, antivirus, and browsers are current. Cybercriminals exploit unpatched systems to steal data.

If fraud happens: step-by-step recovery

1. Keep calm and collect documentation

• Save all IRS letters, emails from your tax preparer, bank statements, and any suspicious correspondence. Note dates and times of calls or interactions.

1. Report to IdentityTheft.gov and the FTC

• Go to IdentityTheft.gov (FTC) to report tax-related identity theft and start a recovery plan. The site creates a personalized step-by-step plan and generates pre-filled forms and letters useful for disputes (IdentityTheft.gov — https://www.identitytheft.gov).

1. Contact the IRS

• Follow instructions on any IRS notices. If you did not receive specific instructions, contact the IRS Identity Theft Specialized Unit or use the phone numbers on IRS notices. You may be asked to submit Form 14039, Identity Theft Affidavit (IRS — https://www.irs.gov/forms-pubs/about-form-14039).

1. File Form 14039 if directed

• Form 14039 documents your claim of identity theft and helps the IRS route your case to the correct team. Complete and include copies of identity documents as requested.

1. Consider a police report and local reporting requirements

• Filing a police report creates an official record that can help with credit disputes and other institutional requirements. Keep a copy of the report for your records.

1. Place a fraud alert or credit freeze

• A fraud alert warns creditors to take extra steps to verify identity before opening new accounts. A credit freeze blocks most new credit applications. Both are free in the U.S.

1. Work with your tax preparer or hire a specialist

• If a fraudulent return was filed under your SSN, you’ll likely need help reconstructing the correct return and communicating with the IRS. In my practice, engaging a tax professional reduces mistakes and speeds resolution.

1. Monitor IRS account transcripts and credit reports

• Regularly check your IRS online account (if you have one) and obtain free annual credit reports. Look for unfamiliar activity and report errors promptly.

Working with the IRS: programs and notices to know

• IP PIN: If you qualify, request an IP PIN through the IRS online Get an IP PIN tool. This prevents fraudulent e-filed returns that lack the number from being accepted (IRS: IP PIN — https://www.irs.gov/identity-theft-fraud-scams).
• Identity Verification Letters: The IRS may send a letter (e.g., Letter 5071C) asking you to verify your identity before processing a return. Follow instructions immediately to avoid processing delays (FinHelp: How to Respond to an IRS Identity Verification Letter).
• Taxpayer Protection Program (TPP): In certain cases, the IRS places victims into a protection program that flags their account and applies additional verification steps to future filings. Ask the IRS representative whether TPP or equivalent protections apply to your case.

Common misconceptions

• Credit monitoring solves everything: Monitoring can alert you to problems but does not stop a criminal from filing a tax return. A credit freeze and IP PIN are stronger preventive tools.
• Only e-filers are at risk: Fraudsters can and do file paper returns. The filing method doesn’t eliminate risk; vigilance and identity safeguards matter for all filers.
• Identity theft is always obvious: Sometimes the only sign is a delayed refund or an IRS notice. Assume risk if you see any unusual tax, banking, or credit activity.

Real-world outcome (brief case study)

A client in my practice received an IRS notice stating a return had been filed in his name. He had not filed, and his e-file attempt had been rejected as a duplicate. We filed Form 14039, reported the matter on IdentityTheft.gov, placed credit freezes, and worked with the IRS Identity Theft Unit. The IRS restored his account and processed his legitimate return, but it took several months and repeated follow-up. The case underscored two lessons: file early and enroll in the IP PIN program where possible.

Useful resources and next steps

• IRS Identity Theft information and resources: https://www.irs.gov/identity-theft-fraud-scams
• IdentityTheft.gov (FTC) — centralized recovery planning and reporting: https://www.identitytheft.gov
• Form 14039, Identity Theft Affidavit (IRS): https://www.irs.gov/forms-pubs/about-form-14039

Internal resources on FinHelp:

• IRS Identity Theft Protection PIN (FinHelp): https://finhelp.io/glossary/irs-identity-theft-protection-pin/
• Handling Identity Theft-Related Tax Returns: Steps to Recover Your Refund (FinHelp): https://finhelp.io/glossary/handling-identity-theft-related-tax-returns-steps-to-recover-your-refund/
• Protecting Your Refund from Identity Theft and Offsets (FinHelp): https://finhelp.io/glossary/protecting-your-refund-from-identity-theft-and-offsets/

Final professional notes and disclaimer

In my experience as a tax practitioner, the combination of early filing, using an IP PIN when available, and preventing unauthorized access to financial accounts is the most effective approach to reducing the odds of tax-related identity theft. Recovery can be time-consuming; acting quickly and keeping detailed records shortens the process.

This article is educational and does not replace personalized tax or legal advice. If you suspect you are a victim of identity theft affecting your taxes, contact a qualified tax professional and use the IRS and FTC resources above for official next steps.