Why tax-related identity theft matters

Tax-related identity theft occurs when a criminal files a federal tax return using another person’s personal information—most commonly a Social Security number—to claim a refund. The immediate harm is a stolen refund or a delayed filing; the longer-term damage can include incorrect earnings records, problems with future tax filings, and time-consuming identity restoration. For many taxpayers I advise, the emotional and financial cost of resolving fraud is the hardest part.

Authoritative sources and official help are essential. The IRS maintains an Identity Theft Central hub with step-by-step guidance (https://www.irs.gov/identity-theft-central). The Federal Trade Commission (FTC) also provides a centralized recovery portal at IdentityTheft.gov (https://www.identitytheft.gov/).

Who is most at risk

Anyone can be a target, but these factors increase risk:

  • Recent data breaches or account compromises.
  • Frequent sharing of personal data online or on social media.
  • Older adults, students, and people who have not recently filed taxes (thieves exploit dormant tax accounts).
  • Small-business owners who use public Wi‑Fi for financial transactions.

In my practice I’ve seen thieves use breached email accounts, stolen mail, and even payroll databases to assemble enough data to file a fraudulent return.

Practical prevention steps you can implement now

  1. File early
  • File your federal return as early as you can. A legitimate electronic return submitted early reduces the window of opportunity for a thief to beat you to a refund.
  1. Get an IRS Identity Protection PIN (IP PIN)
  1. Use secure e-file services and direct deposit to a known bank account
  • File electronically through reputable software, a tax professional, or IRS Free File. Choose direct deposit to an existing bank account rather than prepaid cards or unfamiliar accounts.
  1. Lock down accounts and devices
  • Use strong, unique passwords or a password manager. Enable two-factor authentication (2FA) on email, bank, and tax-filing accounts.
  • Keep operating systems, browsers, and security software updated.
  • Avoid public Wi‑Fi for tax preparation unless you use a verified VPN.
  1. Limit sharing of your Social Security number
  • Only supply your SSN when legally required. Shred documents with SSNs before discarding and avoid carrying your SSN card in your wallet.
  1. Monitor financial and tax accounts
  • Check bank and credit card statements regularly for unexplained transactions.
  • Review your IRS tax account and tax transcripts online (see IRS Online Account on irs.gov) to catch unauthorized activity.
  1. Check your credit reports and consider freezes
  • Get your free annual credit reports at AnnualCreditReport.com and consider a credit freeze with Equifax, Experian, and TransUnion if you detect fraud. A freeze prevents new credit accounts from being opened in your name.
  1. Consider identity monitoring services selectively
  • Fraud monitoring and restoration services can help; weigh costs, coverage, and whether you already have service through some bank cards.

What to do if a fraudulent return is filed in your name

If you suspect tax-related identity theft, act quickly.

  • Follow the IRS guidance: review the Identity Theft Central pages and the steps they list (https://www.irs.gov/identity-theft-central). If you receive an IRS notice about a duplicate return or wages you don’t recognize, do not ignore it.

  • File IRS Form 14039 (Identity Theft Affidavit) if instructed by the IRS or if you cannot resolve the problem online. The form starts the IRS’s identity-theft casework and helps correct your account.

  • Get an FTC Identity Theft Report at IdentityTheft.gov. The FTC provides a step-by-step recovery plan and generates an Identity Theft Report you can use with creditors and the IRS (https://www.identitytheft.gov/).

  • Place fraud alerts or credit freezes with the three major credit bureaus. A fraud alert warns creditors to verify identity before granting credit; a freeze blocks new accounts entirely.

  • If the IRS places a hold on your refund while it investigates, follow their instructions and provide requested documentation promptly. For practical next steps, see our related guide on handling an identity theft hold on your refund: “Handling an Identity Theft Hold on Your Refund: Steps to Resolution” (https://finhelp.io/glossary/handling-an-identity-theft-hold-on-your-refund-steps-to-resolution/).

How the IRS detects and prevents tax identity fraud

The IRS uses data analytics, IP PINs, and identity verification tools to flag suspicious returns. However, given the volume of filings, some fraudulent returns still get processed. If the IRS flags your account, expect an identity-theft marker and possibly a request for additional proof of identity.

For deeper reading on detection and resolution, our article “Tax Identity Theft: How to Detect and Resolve Fraudulent Returns” walks through signs and the resolution timeline (https://finhelp.io/glossary/tax-identity-theft-how-to-detect-and-resolve-fraudulent-returns/).

Common mistakes that make recovery harder

  • Waiting to file or ignoring notices. Filing late gives thieves more time; ignoring IRS letters can extend the investigation.
  • Assuming bank or credit monitoring alone is enough. Monitoring helps detect fraud but does not prevent someone from using your SSN to file taxes.
  • Using weak passwords or reusing passwords across financial and email accounts.

Practical examples from my experience

  • A small-business owner I advised discovered a fraudulent return filed the day before he planned to file. Because we’d enrolled him in an IP PIN the prior year and used a secure tax-prep workflow, the filing was blocked and the IRS’s remediation timeline was shorter.

  • Another client received an IRS notice about wages that weren’t theirs. We used IdentityTheft.gov to create a recovery plan, placed credit freezes, and filed Form 14039. The IRS corrected the account and issued the legitimate refund within several months.

These cases highlight two things: (1) preventative steps make a real difference; and (2) recovery often requires persistence and documentation.

How long does resolution take?

Resolution timelines vary. If the IRS must investigate a fraudulent return or prepare a replacement refund, it can take several months. Using an IP PIN and responding promptly to IRS requests shortens delays. Keep copies of all correspondence and document every phone call.

Additional resources

Also see these related FinHelp guides for step-by-step resolution and prevention:

Final checklist — Protect your refund in 10 minutes

  • File your return as early as possible.
  • Request an IRS IP PIN and use it each year if eligible.
  • Use 2FA and a password manager for financial and tax accounts.
  • Verify direct deposit instructions before filing.
  • Monitor bank statements and credit reports monthly during tax season.
  • If you get an IRS notice you don’t understand, act immediately.

Professional disclaimer

This article is for educational purposes and does not replace personalized legal, tax, or identity-recovery advice. In my professional practice I recommend contacting the IRS and the FTC immediately if you suspect identity theft, and consulting a tax professional or attorney for complex cases. Information in this article is accurate as of 2025 and links to IRS and FTC resources for the most current guidance.