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What to Do If Your Refund Is Stolen

As many taxpayers gather their financial documents to do their tax returns, a number of unlucky filers are finding that someone else has already filed in their name — and walked away with their refunds.

For the 12th year in a row, identity theft topped the list of consumer complaints received by the Federal Trade Commission in 2011, with nearly 280,000 complaints, according to a report released on Tuesday. And a bigger chunk of those cases is tax related, with 24% of identity theft complaints being tied to tax or wage-related fraud, up from about 15% in 2010, according to the FTC.

For some victims, the fraud isn’t discovered until they hit the send button on their electronic tax returns — and get a rejection note from the IRS. Other times it takes a little longer to know something is wrong, such as not receiving a refund check. You might also receive an IRS letter saying the income reported doesn’t match their records — a sign someone else could be using that Social Security number.

Any of this sound familiar? Taxpayers should report suspected fraud to the IRS Identity Protection Specialized Unit at 1-800-908-4490. They should hold on to any letters sent to them from the IRS and fill out the IRS Identity theft Affidavit, a form for reporting fraud or suspected fraud.  Victims will also need documentation to help prove their identity, including W-2 forms, previous tax returns and a photo ID. Once suspected fraud is reported to the IRS, taxpayers should also check their credit reports and alert the credit reporting agencies about any accounts or charges fraudulently made in their names. The FTC also recommends filing a report with your local police department and placing a fraud alert on credit reports.

Experts say it may take at least six months before taxpayers can get their stolen refunds back. (This blogger’s friend dealt with this last year and it took 11 months for her to get her refund.) Once the investigation is launched, the IRS has to confirm the person’s identity, track down the fraudster and locate the refund. There is a slim silver lining: the IRS pays modest interest on refunds that are issued late.

Identity theft has been a focus of the IRS this year, when the agency has stepped up enforcement actions, including new efforts to identify false tax returns before refunds are issued. In a nationwide sweep conducted in January, investigators took 200 actions across 23 states, including 58 arrests.  The IRS also created a new section on its website dedicated to identity theft, where taxpayers can read about enforcement actions and find tips for preventing fraud.

One key step taxpayers can take is to avoid giving personal information over the phone or via email, says Michael Bush, a director with PrivacyGuard, a company that offers identity theft production products. The IRS will never contact taxpayers via email, says Bush. And people who get calls from the IRS asking to verify information should hang up and call the IRS directly through a number posted on Irs.gov. You should also be careful when choosing your tax preparer.

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    • Indeed it’s a cumbersome process to get your refund back if it’s stolen, that’s why I believe we, taxpayers have to take every measure in order to prevent identity theft.

      I came across an article that mentions the majority of measure one can take:
      http://www.prestinaegele.com/how-do-i%E2%80%A6-guard-against-taxpayer-identity-theft

      I would just add using a shredder to destroy tax related documents after tax season is over and keep the necessary ones in a safe. And try to collect all of your mail as soon as possible during tax time.

About The Tax Blog

  • The Tax Blog brings together a team of award-winning tax journalists from the Dow Jones network and around the web to examine the tax issues, changes and legislation that affect families, investors and small business owners. Our contributors include Tax Report columnist Laura Saunders (WSJ), Tax Guy columnist Bill Bischoff and senior reporter Jilian Mincer (SmartMoney.com), retirement-focused reporter Anne Tergesen (WSJ), wealth management writer Arden Dale (Dow Jones Newswires), TaxWatch columnist Eva Rosenberg and personal finance reporter Andrea Coombes (MarketWatch), and reporter Alyssa Abkowitz (SmartMoney). They’ll provide the latest news and insight, mine the tax code for tips and loopholes, and answer your questions about tricky tax situations. Contact the The Tax Blog with ideas, suggestions or tax questions at thetaxblog@dowjones.com.