What Happens If Someone Files Taxes in Your Name?
Every year, the Internal Revenue Service (IRS) processes hundreds of billions of dollars in tax returns — but not all of them are legitimate. Identity thieves have realized that IRS scams are extremely lucrative. Using stolen information, fraudsters can file bogus tax returns and collect massive refunds in your name.
That’s what happened to the victims of ex-IRS employee Deena Vang Lee. Deena used her position as a tax preparer to claim bogus child care costs on her clients’ returns and collected huge tax refunds without their knowledge [*].
According to the latest data [*]:
The IRS identified over $5.7 billion in tax fraud in 2022 alone — with even more expected this year.
With tax identity theft on the rise across the country, it’s important to know the warning signs. In this guide, we’ll cover how tax identity theft happens, the red flags to watch out for, and what to do if you’re the victim of tax-related identity theft.
What Is Tax Identity Theft? How Does It Happen?
Tax identity theft occurs when someone uses your personal information to fraudulently file taxes in your name. The perpetrator could be an opportunistic cybercriminal with access to your Social Security number (SSN), or even a corrupt tax preparer whom you’ve entrusted to file your taxes.
While there are several different types of tax identity theft, the goal is the same: Trick the IRS into sending an inflated tax refund to scammers instead of you.
Here’s how a typical tax identity theft scam works:
- Criminals steal or buy your information. Fraudsters need very little personal data to file taxes in your name — your SSN and address may be all it takes. To obtain this data, they might target you with phishing scams or buy stolen data on the Dark Web for as little as $2 [*].
- In some cases, fraudulent tax preparers misuse your data. Even certified tax professionals may abuse their positions to file false claims in your name.
- Scammers file fraudulent tax returns showing bogus withholding claims. The more taxes you claim were withheld, the higher your tax refund will be. With over 168 million individual income tax returns expected this year, the IRS doesn’t have time to verify every claim before processing refunds [*].
- Next, the scammers switch your deposit information with their own. This ensures that the IRS pays them the fraudulent return. It also prevents you from knowing your return was filed.
- When you file your taxes, the IRS rejects your claim. This might prompt an investigation. When the IRS finds out it processed a false refund, it will assume you’re at fault until you prove your innocence.
How To Tell If You’re the Victim of Tax Identity Theft
Tax identity theft can be hard to catch. Scammers can avoid detection by filing taxes early — giving them time to receive the refund and disappear before you know what’s happened.
It’s even harder to catch your tax preparer committing tax fraud. You may only find out about their fraudulent activity when the IRS opens an investigation. By this time, your tax professional has had ample time to save themselves by shifting blame onto you.
If you see any of these warning signs, you could be the victim of tax fraud:
- The IRS informs you that another return has already been filed using your SSN. If someone files for taxes using your identity, you won’t be able to file a legitimate return.
- You receive a 5071C letter from the IRS. This IRS notice alerts taxpayers to the possibility of tax ID theft.
- The IRS contacts you about a suspicious tax return that you didn’t file. The IRS may reach out and ask you to verify suspicious tax return data.
- You’re informed that an online IRS account has been created in your name. If someone opens an IRS account using your Social Security number but doesn’t change your contact information, you may receive a notification of the new account.
- You’re assigned an Employer Identification Number (EIN) that you don’t recognize. Sometimes scammers use your SSN to gain employment. Be especially cautious if you receive mail or see information on your Social Security Statement showing earnings from an employer you don’t work for.
- You receive unsolicited tax transcripts. Taxpayers have to request transcripts from the IRS. You may receive a copy if someone requests transcripts in your name.
- The IRS has records of employment that you don’t recognize. False employment records can increase tax withholding refunds. Scam artists may try to report a salary that you didn’t earn.
- You receive W-2 or 1099 forms from employers that you never worked for. Tax law requires employers to send these forms to their employees every year. If you get one from an employer you didn’t work for, you could be at risk.
The bottom line: Any unfamiliar information from the IRS, Social Security Administration (SSA), or an unknown employer is a major red flag that you’re the victim of tax identity theft and need to act quickly.
Were You the Victim of Tax Identity Theft? Do This!
- Report the tax fraud to the IRS
- File an identity theft affidavit with the FTC
- Notify your local and state tax authorities
- Freeze your credit with all three bureaus
- Pay your (legitimate) taxes
- Close any fraudulent accounts opened in your name
- Request a copy of fraudulent tax returns
- Contact your local law enforcement
- Consider signing up for identity theft protection
If you suspect someone has filed a fraudulent tax return in your name, here’s what to do:
1. Report the tax fraud to the IRS
If someone committed tax fraud in your name, the IRS will eventually identify this discrepancy. If you report the fraud before that happens, they are less likely to investigate you as a suspect. As soon as you realize there’s something wrong with your tax account, contact the IRS.
If you contact the IRS first:
You’ll need to file an IRS form declaring that you are the victim of identity theft. Form 14039 (Identity Theft Affidavit) lets the IRS know that your previous return is fraudulent. You’ll have to file this form along with a paper return and mail it to the IRS address in your state.
If the IRS contacts you first:
The IRS will begin its investigation by sending you a 4883C letter, which asks you to verify your identity and declare that you did not file the fraudulent tax return in question.
You’ll most likely need to speak with an IRS agent over the phone. If you can’t verify your identity over the phone, the IRS may ask you to visit your local IRS Taxpayer Assistance Center in person.
💡 Related: The 13 Latest Tax Refund Scams To Watch Out For →
2. File an identity theft report with the Federal Trade Commission (FTC)
Your FTC identity theft report legally demonstrates that you’re the victim of identity theft. You will need it to dispute fraudulent transactions and false tax returns. The FTC will also provide you with a personalized recovery plan to help you deal with other consequences of identity theft.
How to report identity theft to the FTC:
- Go to IdentityTheft.gov and click “Get Started” and then “Someone filed a federal tax return using my information.”
- Follow the instructions to report the incident, and fill out as much information as you can. You’ll receive an official response from the FTC. Keep this document and refer to it when addressing identity theft issues.
3. Notify your local and state tax authorities
Tax identity theft doesn’t just put your federal tax returns at risk. Scam artists can file fraudulent local and state taxes, too. If you are the victim of tax identity theft at the federal level, there’s a good chance your state and local taxes are vulnerable.
How to report tax identity theft to local and state authorities:
Most state tax administrators have specific resources for residents who are victims of identity theft. You can find these resources by searching for “Identity Theft” on the appropriate website or contacting the tax department directly.
Consult this list of state tax agencies to find your state’s Department of Revenue.
4. Freeze your credit with all three bureaus
Your tax documents contain financial information that scammers can use to open bank accounts and take out debt in your name. If they have already committed tax identity fraud, there is little stopping them from using your identity again.
You can stop fraudsters from opening new accounts in your name by freezing your credit with the three major credit bureaus (Experian, Equifax, and TransUnion). This service is free and it doesn’t impact your credit score. However, it will also prevent you from opening up new accounts or taking out loans until you unfreeze your credit.
How to freeze your credit report with each credit reporting agency:
Each bureau has its own process for freezing credit. You’ll need to contact each one individually to prove your identity before they’ll issue you a PIN to use when freezing or unfreezing your credit file.
Here’s how to contact each credit bureau:
For quicker and more convenient protection, identity theft protection services like Aura can lock and unlock your credit file automatically.
5. Pay your (legitimate) taxes
Reporting tax identity fraud tells the authorities to discard the previous tax report filed in your name. But that doesn’t mean you don’t need to file and pay your taxes. As part of the recovery process, you’ll need to file an accurate report as soon as you can — and pay any taxes that you owe.
How to pay your taxes after tax identity theft:
The IRS will not let you e-file your new tax return, so you’ll have to send it by mail. Consult this list of IRS taxpayer return addresses in each state, and make sure you’re sending your return to the proper location depending on your situation (for example, whether or not you’re enclosing payment with your return).
Keep in mind that paper tax returns take longer to process than e-filed returns. If your state’s IRS office has a backlog, it may take weeks for you to receive a response.
6. Close any fraudulent bank accounts opened in your name
You may find that scam artists have used your identity to open new bank accounts or take out loans in your name.
Contact any impacted company or financial institution and ask to talk to its fraud department about closing the unauthorized accounts. You’ll need to provide the Identity Theft Report you got from the FTC and use it as proof that you did not open the original account.
Here’s what to do if you find fraudulent accounts open in your name:
- Contact the financial institution’s fraud hotline and provide your FTC Identity Theft Affidavit and proof of identity.
- Ask them to provide a letter that clearly states that the account was fraudulently opened and that you aren’t responsible for any debts. You’ll need this to dispute debts that have been sent to collections.
- If the bank asks you to pay for fraudulent charges made on your account, don’t do it.
💡 Related: The 7 Best Credit Monitoring Apps of 2023 — Which One Is Best For You? →
7. Request a copy of the fraudulent return
The information on a fraudulent tax return can provide valuable clues about the thieves and even other scams they’ve committed against you.
The IRS may choose to redact some parts of the return you’ve requested (to protect you against additional identity theft risks). In addition, you can only request copies of tax returns that list you as a primary or secondary taxpayer. The IRS won’t send your tax returns to anyone else, including family members or dependents.
How to request a copy of your tax return:
Complete Form 4506-F (Request for a Copy of a Fraudulent Tax Return) and submit it either by mail or fax. If you submit it by mail, you should send the completed form to this address:
Department of the Treasury
Internal Revenue Service
Fresno CA, 93725
If you submit it via fax, you should include a cover sheet marked “confidential” and send the documents to this toll-free number: 855-807-5720
8. Contact your local law enforcement
Filing an identity theft report with local law enforcement can help protect you against damages caused by identity theft. For example, if someone uses your identity to commit a crime, you’ll need to use this report to clear your name. Your bank may also ask for a police report in addition to your FTC identity theft report.
Unfortunately, local police departments can only address certain identity theft situations.
Here’s when you can file a police report for tax identity theft:
- When you know the person who committed the crime.
- If you have information that can help the police investigate the crime.
- If your identity was used in a police interaction, or to commit a crime.
- If a financial institution has specifically asked for a police report.
💡 Learn more: How To File a Police Report For Identity Theft →
9. Consider signing up for identity theft protection
Tax fraud is not always preventable. If your tax preparer is the culprit, you may not know that fraud has occurred until it’s too late.
You can limit the damage caused by tax identity theft by subscribing to an identity theft protection service that includes SSN and credit monitoring.
Aura continuously monitors your credit file and alerts you when new inquiries are made into your accounts. This gives you near real-time notification that someone is using your data to open a new credit card account or bank loan in your name.
Here’s what you get with Aura:
- Award-winning identity theft protection and monitoring. Aura monitors your most sensitive information — including your SSN — and warns you if someone is using it without your permission. Aura was recently given the Best Identity Theft Protection award from Money.com.
- Three-bureau credit monitoring with the fastest fraud alerts. Aura constantly monitors your credit file, bank accounts, and more for signs of fraud. A 2022 mystery shopper consumer study by ath Power Consulting found that Aura discovered more instances of potential fraud (such as when new credit accounts are opened in your name) and sent fraud alerts up to 250x faster than competing services.
- Proactive digital security for your accounts, data, and devices. Every Aura plan comes with a full suite of digital security tools, including antivirus software, a military-grade virtual private network (VPN), secure password manager, Safe Browsing tools, and more.
- 24/7 U.S.-based Fraud Resolution Specialists. When you need help, Aura’s team of fraud resolution specialists is always just a phone call, email, or chat message away.
- Up to $5 million in identity theft insurance. If the worst should happen, every adult member on an Aura plan is covered for up to $1 million in eligible losses due to identity theft (up to $5 million total on a family plan).
How To Protect Yourself Against Tax Identity Theft
Tax-related identity theft is difficult to catch, making prevention the best way to ensure that your identity and tax return stay secure throughout the tax season. Pay close attention to the way you communicate with the IRS — and the sensitive data you expose in the process.
Here are a few ways you can protect yourself against tax identity theft:
- File your taxes early. The sooner you file your taxes, the less time identity thieves have to file a return in your name.
- Protect your SSN and other sensitive information. If scammers know your Social Security number, they may be able to file fraudulent tax returns in your name. Keep it safe and follow these steps if you think someone has access to your SSN.
- Secure your online accounts with a password manager and 2FA. Strong passwords protect your sensitive accounts and online information. For added security, use two-factor authentication (2FA) to prevent hackers from accessing your online accounts — even if they have your passwords.
- Request an Identity Protection PIN. The IRS can assign you a secret six-digit number that you can use to verify your identity when filing your taxes. You can request an IP PIN on the IRS.gov website.
- Beware of IRS imposter scams over the phone, text, or email. Scammers may impersonate IRS agents to trick you into giving up sensitive data.
- Scan the Dark Web for your personal information. If your data was exposed in a data breach, it may be available for sale on the Dark Web. Use a free Dark Web scanner to see what accounts are vulnerable to hackers.
- Thoroughly vet any tax preparer. Your tax preparer must uphold the highest standards of trust and ethical behavior. Don’t risk relying on someone with a history of wrongdoing. Be especially cautious if a tax preparer refuses to sign your return — this is a huge red flag that you could be dealing with a scammer.
- Monitor your SSN with an identity theft protection service. The faster you can respond to identity theft, the easier it will be to resolve. Learn more about how Aura keeps your identity safe →
What Is the IRS Doing To Protect You From Identity Theft?
Protecting your identity and combating tax fraud isn’t just your responsibility.
The IRS invests a great deal of time, energy, and resources into securing its processes against fraud. In partnership with state and local tax authorities, the IRS has launched numerous security campaigns like Taxes. Security. Together. and Protect Your Clients; Protect Yourself.
These campaigns play an important role in preventing tax fraud and reducing the risk of identity theft for taxpayers. They have saved taxpayers $26 billion that would otherwise have been fraudulently refunded to scammers.
However, the IRS is also an enormous and complex institution. Taxpayers can’t rely on it to completely detect and block every instance of identity theft that occurs. It’s every taxpayer’s responsibility to keep their sensitive data secure, and to respond quickly when suspicious activities occur.
The Bottom Line: Protect Your Identity From Scammers and Criminals
Tax identity theft is a risk that all taxpayers share. Whether you work with a professional tax preparer or send your own returns to the IRS in the mail, someone can use your personal data to steal your tax return.
The best way to protect yourself from tax identity theft is by protecting your personal information. Successfully keeping your Social Security number secret makes it much harder for scammers to file a return in your name.
For added protection, consider Aura’s top-rated identity theft protection. Aura’s all-in-one digital security solution can help keep your most sensitive information safe from hackers, scammers, and fraudsters.