Protecting Your Refund from Identity Theft: Detection and Recovery Steps

Quick overview

Tax-related identity theft happens when someone files a federal tax return using your Social Security number to claim a refund. If it happens to you, the result is often a delayed or diverted refund, extra paperwork, and several months of dealing with the IRS and credit bureaus. This article lays out practical detection steps, immediate recovery actions, and prevention strategies you can use right away.

How tax-related identity theft typically works

Fraudsters use stolen personal data (SSNs, dates of birth, filing status) to file false returns early in the filing season. Because many refunds are issued quickly to direct-deposit accounts, attackers try to beat legitimate filers to the IRS system. You may learn about theft when your return is rejected as a duplicate, you receive an IRS notice, or you get a bank alert about a transaction you didn’t authorize.

I’ve worked with clients where refunds were delayed by months; in several cases a stolen refund was recovered after following the IRS recovery process, but only after supplying identity documents, filing Form 14039, and staying in close contact with the IRS and banks.

Immediate detection steps (what to check first)

1. Confirm any IRS notices. If you receive a letter saying a return was filed or your identity needs verification (for example, letters like 5071C), don’t ignore it. Scammers also send fake letters, so verify by visiting IRS.gov or calling the IRS Identity Protection unit. (IRS guidance: https://www.irs.gov/newsroom/taxpayer-guide-to-identity-theft)
2. Log into your IRS account. Create or sign in to your account at IRS.gov to view recent activity. Discrepancies are a strong early sign.
3. Check rejected e-file messages. If an e-file is rejected with a message that a return already exists for your SSN, that’s a red flag.
4. Review bank accounts and credit reports. Look for unfamiliar deposits, withdrawals, or new accounts opened in your name. Request free credit reports at AnnualCreditReport.com and consider using IdentityTheft.gov to create a recovery plan.

Immediate recovery steps (what to do if you discover theft)

1. File Form 14039 (Identity Theft Affidavit). This is the IRS form used to report tax-related identity theft. Follow the instructions on the IRS site and include any requested identity documents. (Form details: https://www.irs.gov/forms-pubs/about-form-14039)
2. Report to the FTC at IdentityTheft.gov. Filing at the Federal Trade Commission’s recovery site creates an identity theft report and step-by-step recovery plan you can use with creditors, employers, and government agencies. (FTC resource: https://www.identitytheft.gov)
3. Place a fraud alert or freeze on your credit reports. Contact one of the three credit bureaus (Equifax, Experian, TransUnion) to request a fraud alert or a full credit freeze. You only need to contact one bureau to set a 1-year alert; a freeze must be placed with each bureau.
4. Contact your bank or card issuers. If a stolen refund was deposited to an account you control, notify the bank immediately. If the deposit was to an account opened by a thief, the bank and the IRS will coordinate recovery steps.
5. File a police report if instructed. In some cases, creditors or certain government agencies will request a local police report. Keep copies of all reports and correspondence.
6. Keep detailed records. Document every call, letter, form, and date. These records speed up resolution when you escalate the case.

How the IRS handles tax-related identity theft and timelines

When the IRS confirms identity theft, they typically open an identity theft indicator on the taxpayer’s account and begin a manual review before issuing any refund. Expect delays: the IRS notes that resolution can take several months in many cases. You may be asked to verify your identity by phone, through an IRS online tool, or by sending documents.

If the IRS determines someone filed a return using your SSN, they will contact you with instructions—often asking you to submit Form 14039 or to follow special filing procedures. You may receive an IP PIN (Identity Protection Personal Identification Number), which is a six-digit number the IRS issues to confirmed victims to prevent fraudulent e-filed returns from being accepted without that PIN.

Phone help: the IRS maintains specialized units for identity-theft victims. Check IRS.gov for the current Identity Protection phone numbers and hours. (General IRS guidance: https://www.irs.gov/newsroom/taxpayer-guide-to-identity-theft)

Preventive measures to reduce future risk

• File early. Submitting your tax return early in the filing season reduces the window a thief has to beat you to the return.
• Apply for an IRS IP PIN when eligible. The IP PIN program adds another layer of security; apply via the IRS Get an IP PIN tool if you qualify. (More: https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin)
• Protect your SSN. Do not carry your Social Security card in your wallet and limit sharing your SSN to only when legally required.
• Use strong, unique passwords and enable multi-factor authentication (MFA) on accounts that store personal or tax information.
• Work only with reputable tax preparers. Verify their PTIN (Preparer Tax Identification Number), check reviews, and avoid preparers who promise unusually large refunds or insist on having your SSN in unsecured ways.
• Monitor credit and financial accounts regularly. Consider identity-monitoring services only after weighing cost vs. benefit.

Practical tips for working with the IRS and third parties

• Respond promptly to IRS letters. Many delays are caused by taxpayers not responding in time or failing to provide requested documents.
• When requested, submit clear copies of identity documents (driver’s license, passport, Social Security card) and follow secure upload or mailing instructions from the IRS.
• Use the FTC identity-recovery plan when dealing with banks, creditors, and credit bureaus; it produces a Recovery Recommendation Letter that many institutions accept.
• If you use a tax pro to refile after identity theft, choose someone who understands identity-theft cases and can track IRS correspondence.

When to escalate or get professional help

• Call the IRS Identity Protection unit if you can’t resolve the account issue online or via mail. Check the IRS website for the most current contact numbers.
• Consider hiring a tax attorney or an experienced tax-resolution firm when the case involves large sums, complex business filings, or prolonged inability to get the IRS to clear the fraudulent return.
• Contact your state tax agency if the fraudulent filing affected state taxes; states have their own procedures and protections.

Internal resources (FinHelp) that can help

• How to Handle Identity Theft on Your Tax Account: https://finhelp.io/glossary/how-to-handle-identity-theft-on-your-tax-account/
• IRS Identity Theft Protection PIN: https://finhelp.io/glossary/irs-identity-theft-protection-pin/
• Recovering Identity-Theft-Related Refunds: Timeline and Tips: https://finhelp.io/glossary/recovering-identity-theft-related-refunds-timeline-and-tips/

Common mistakes to avoid

• Waiting to file your return. Delays give fraudsters a longer window to file a phony return and claim the refund.
• Providing documents to anyone who calls claiming to be the IRS. The IRS initiates most taxpayer contacts by mail, not by unsolicited phone or email.
• Assuming a single fix ends the risk. Identity theft often requires ongoing monitoring—thieves can reuse stolen information over time.

Example workflow (step-by-step)

1. You get an IRS notice or an e-file rejection. 2. Log into your IRS account and get a copy of the notice. 3. File Form 14039 and report the theft at IdentityTheft.gov. 4. Place fraud alerts/freezes with the credit bureaus and notify your bank. 5. Follow IRS instructions to verify identity and, if eligible, get an IP PIN. 6. Keep copies of all correspondence until the case is closed.

Authoritative sources and further reading

• IRS — Taxpayer Guide to Identity Theft (IRS): https://www.irs.gov/newsroom/taxpayer-guide-to-identity-theft
• IRS — Get an Identity Protection PIN: https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin
• IdentityTheft.gov — Federal Trade Commission resources: https://www.identitytheft.gov
• Consumer Financial Protection Bureau — Identity Theft and Your Rights: https://www.consumerfinance.gov/consumer-tools/identity-theft/

Final notes and professional disclaimer

Protecting your refund from identity theft takes proactive steps before filing and prompt action after detection. In my practice helping clients recover stolen refunds, the most effective actions were filing Form 14039 quickly, using IdentityTheft.gov to generate a recovery plan, and getting an IP PIN when provided by the IRS. This article is educational and not legal or tax advice. For personalized guidance, consult a tax professional or attorney familiar with identity-theft cases.