04 Tax ID Theft Refund Fraud

Page 109
Executive Summary
In 2013 IRS told congress the
only way to slow down refund
fraud was to do the following:
Delay filing season
Quicker document verification
Later issuance of refunds
Still waiting to hear how this all

turned out
1
04: Tax Identity Theft
Page 109
Executive Summary
REALITY OF
SITUATION
 While IRS has stepped up
their efforts the fraudsters
sophistication grows faster
than IRS ability to identify.
 The ATM of the US tax

systems seems to be slowing.
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Page 109
Executive Summary
IRS did the following in 2017 processing season:
1. W-2 verification project – Voluntary
2. Additional data elements
3. Information sharing with partners
4. Education and Outreach
5. Partnering with 23 states to identity fraudulent
returns (drivers license database)
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Page 109
Executive Summary
Collection of Driver’s License Information by
Practitioners
Many practitioners are skeptical and clients even
more so, but Alabama, New York and Ohio require
it.
A significant number of other states insist it
solidifies the security profile of the return and helps
speed up the refund process.
The primary assumption in the industry is the
practice will only increase.
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Page 109-Bonus
Executive Summary
Driver’s License
Some industry discussions
 blog.aicpa.org/2017/03/heres-the-skinny-on-drivers-
license-information-for-state-tax-returns.html
 journalofaccountancy.com/news/2017/feb/drivers-
license-information-on-state-returns-201715949.html
 irs.gov/individuals/new-security-safeguards
 ustaxhelp.com/2017/02/the-irs-requires-taxpayers-to-
provide-drivers-license-information-when-e-filing-taxes/
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Page 111
Executive Summary
Taxpayers are turning to their tax professionals to
assist with protecting themselves from fraud:
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Page 111
Executive Summary
optoutprescreen.com
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Page 111
Executive Summary
optoutprescreen.com
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Page 111-112
Executive Summary
Taxpayers are turning to their tax professionals to
assist with protecting themselves from fraud:
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Page 112
Executive Summary
IRS Resources
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Page 112-113
Executive Summary
The Summary of IRS Identity Case Management
1. Fail to handle in a timely fashion

2. Limited communication to victims
3. Poor processing of identified returns
4. Poor organization of IRS guidelines in IRM
5. Poor use of information gathered from prior
cases.
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Page 113
How to Identify if an Individual is a
Victim of ID Theft
Warning Signs
1. Financial and medical record with unknown
information.
2. Benefits that do not match owner.
3. Medical providers asking for information that
does not match medical history.
4. Incorrect work history, i.e. SSA-7004
5. Unusual and unidentified charges on bank and
credit statements.
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Page 113-114
Victim of ID Theft
The IRS signals we have seen through the years
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Page 114
Victim of ID Theft
Some of the new twists we are seeing:
1. Closed Business communications.
2. Individual information on business
accounts that never employed the
individual.
3. Unexpected unpaid taxes.
4. Original returns processed as
amended
5. A corporate entity springs suddenly
back to life.
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Page 114
Dealing with IRS for Tax Account Fraud

The IRS says/asks that the following should occur:
1. Upon discovery of Tax Refund Fraud, file Form
14039.
2. Respond to any IRS notice ASAP.
3. File taxes as required.
4. Visit irs.gov/identity theft to determine current
issues.
Updated address irs.gov/individuals/identity-

protection
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Page 114

In the IRS Information and guidance additional
recommendations provided will be:
 File a FTC report (go to identitytheft.gov/?
utm_source=takeaction
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Page 114

In the IRS
Information and
guidance additional
recommendations
provided will be:
 File a report
with the local
police
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Page 114

The IRS response will be:
1. Confirm/Process Form 14039 (new fax
number for submission is 855-807-5720)
2. Taxpayer account will be coded to indicate a

report of identity theft.
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Page 114

The IRS response will be:
3. Reconcile the account to reflect valid return
information.
4. Place a theft indicator on the account (IP PIN
requirement) if the IRS determines it
necessary.
5. Place a hold for all communication during the
investigation.
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Page 115

Our role in the process:
1. Determine if it is best to file Form 14039 now
or later.
2. Review the event with the client.
3. Obtain an engagement for the theft issues.
4. Obtain Form 2848 – IRS can be difficult here.
5. Make your best attempt to get a transcript.
6. Review transcripts to identify fraudulent
activity.
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Page 115
The Notices Used by IRS for
Identity Theft
IRS uses a variety of notices and occasionally a new
one will appear, look on Basic Tools for Tax
Professional, Understanding your Notice.
LT 5071C
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Page 115
Identity Theft
Letter 5071C
1. Go to idverify.irs.gov – Not currently
available all service has been moved to
telephone support only, not likely to return as
has been closed since August of 2016
2. Call 800-830-5084 – Long waits and lots of
questions, have return information available
to discuss
3. Only individuals who have received LT5071C
or LT4883C will be assisted on above number
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Page 116
Identity Theft
LT5073C – IRS confirmation of identity theft
report
 Oops cannot find this one on irs.gov
 Normally a response to Form 14039 filing
 May be a response of IRS identification of an
ID Theft Issue
23 04: Tax Identity Theft

Page 116
Identity Theft
There is no information from the IRS currently

available on this notice.
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Page 116
Identity Theft
LT4883C – IRS
needs a response
 Call the idverify
number of 800-
830-5084
 Prior year return
data will be
needed to verify
authorized This was not the taxpayer’s
individual return that generated this letter.
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Page 116
Identity Theft
LT4310C – IRS has identified possible ID Theft
using one of its identification techniques
No need to contact IRS

IRS now acknowledges this notice
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Page 116
Identity Theft
LT239C – IRS thinks the taxpayer is a victim and
has placed an indicator on the account
Issues:
 IRS has committed the taxpayer to the ID
Fraud procedures.
 If IRS is right great, if they are wrong a mess.
 No help on irs.gov available they do not
acknowledge the notice.
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Page 116
Identity Theft
The IP PIN Family of Notices – CP01
The IRS has confirmed the placement of the IP
PIN indicator on the account. For the current year
and the next an IP PIN must be entered on return
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Page 116
Identity Theft
The IP PIN Family of Notices – CP01A
The annual notification of the IP PIN, the
taxpayer will be assigned a new IP PIN EVERY
YEAR
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Page 116
Tax Identity Theft
The IP PIN Family of Notices –
CP01B
The return was filed with an IP PIN
and IRS needs more info – The
taxpayer must contact IRS or return
will not be processed.
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Page 116
Tax Identity Theft
CP01C
Theft information has been
received and processed by IRS. An
indicator has been attached to the
account.
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Page 117
Tax Identity Theft
The IP PIN Family of Notices – CP01F
The IRS is asking the taxpayer to join the
IP PIN family for reasons other than tax
identity theft
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Page 117
Tax Identity Theft
CP01H
The IRS has been notified (generally the
SSA) that the taxpayer is deceased and
IRS will not process the return
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Page 117
Tax Identity Theft
CP01S
Acknowledgement of identity theft
claim. Compromised processing will
ensue from this point forward.
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Page 117
The Identity Protect Personal
Identification Number (IP PIN)
The IP PIN – Once you are in you are in, no if
ands or buts.
The period will be 4 tax periods at least and if
IRS makes a determination more.
Each period should have a CP01A received by
the taxpayer.
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Page 117
Some pointers on the IP PIN receipt:
 CP01A normally is received by taxpayer
between 12/24 and 01/15
 If there is an error on the notice call 800-908-
4490
 If the notice was not received or lost go to
irs.gov. Register at “Secure Access” if not
previously done so.
 Go to irs.gov/individuals/retrieve-your-ip-
pin or call 800-908-4490 (21days)
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Page 117
NO IP PIN and a rejection will follow
Each year is a new number
37
Page 118-119
Some issues:
CP01A fails to arrive
 Get it replaced by calling IRS at 800-908-
4490
 Go to irs.gov/individuals/get-an-identity-
protection-pin
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Page 119
Obtaining a Copy of the Fraudulent Returns
Filed Using the Taxpayer Account
A helpful piece of information for the taxpayer is a
copy of the “fraudulent” return(s). Why?
 Local law enforcement will use to pursue the
case. BUT
IRS will decline to release until the investigation is
complete. Why?
 To insure the requester of the “fraudulent”
returns is in fact the injured taxpayer.
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Page 119
The procedures for obtaining the “bad return” ,
under Program Manager Technical Advice 2015-
019 are specific and the request must include:
1. Name and Social Security Number
2. Mailing Address
3. Tax year or years requested, and
4. The statement “I declare I am the taxpayer under
penalties of perjury.”.
5. A copy of a government issued photo ID.
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Page 119
A person who makes the request, a POA, for the
return must also:
1. Indicate their name and FEIN.
2. Relationship to the identity theft victim.
3. Mailing Address.
4. CAF number.
5. The statement “I declare that I am the person
authorized to obtain the information requested”.
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Page 120
There are some additional steps that must be
followed by the “victim” of the theft:
1. A copy of a government issued ID with a
picture.
2. Per the prior statement a copy of the Form 2848
if it applies
The request must be sent to:
IRS; PO Box 9039: Andover, MA 01810-0939
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Page 120
The IRS continues to insist that they not only are
required to protect the identity of the injured
taxpayer but that of the scammer.
However, Chief Counsel’s
office says: The fraudulent
return is a nullity, as it
does not qualify as a return
per IRC 6103 BUT still is IRS
subject to disclosure
restrictions of IRC
6103(a).
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Page 120
Okay the taxpayer can get part of the return
pursuant to the IRS’s ability to share information
used in processing the T/P’s return.
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Page 120
Some closing issues for working with the IRS:
1. No copy of the return for stolen dependent’s
information, the taxpayer/spouse must be listed
on return to permit disclosure under IRC
6103(a).
2. The process is completely frustrating because:
 It takes a long time.
and
 IRS seems to care more for the bad guy than the
T/P.
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Page 120
Protecting your Tax Data

What the IRS says:
 Don’t respond to e-mails with IRS in the from
field
 Check out your tax preparer
 Secure your return
If you are hiring a preparer to do your taxes,
ask the preparer what systems he or she has in
place to keep your physical paperwork and
your electronic data safe.
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Page 121
What Kind of Resources are Available

When faced with the problem:
IRS Identity Protection Specialized Unit –

Overloaded but they can help.
Taxpayer Advocate Service – A final cry if
IRS has failed your client
Federal Trade Commission – Can help law
enforcement link the threads together
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Page 122
What Kind of Resources are Available

The IRS Guide to Identity Theft:
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Page 109-122
Bonus - Some Additional Steps

Consider these steps also:
 File Form 8822 to insure IRS’s file reflects the
correct address.
 Obtain a transcript of the following if possible:
 Account Transcript
 Wage & Income Transcript
 Return Transcript
 Try not to file Form 14039 until it is clear it will
be helpful to your client.
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Tax Identity Theft is Spreading
Tax identity theft is no longer a problem for our client’s
refund but an industry wide problem that is affecting every
aspect of tax filing:
By a show of hands:
1. Our firm has had greater than 10% of our clients directly
affected by identity theft.
2. Our firm has experienced theft of client records.
3. Our firm has purchased data breach coverage.
4. When a client encounters tax identity theft we counsel
them on how to deal with the theft in addition to the tax
filing issues.
50

04 Tax ID Theft Refund Fraud

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Page 109

Still waiting to hear how this all

 The ATM of the US tax

1. Fail to handle in a timely fashion

Dealing with IRS for Tax Account Fraud

Updated address irs.gov/individuals/identity-

Dealing with IRS for Tax Account Fraud

Dealing with IRS for Tax Account Fraud

Dealing with IRS for Tax Account Fraud

2. Taxpayer account will be coded to indicate a

Dealing with IRS for Tax Account Fraud

Dealing with IRS for Tax Account Fraud

23 04: Tax Identity Theft

There is no information from the IRS currently

No need to contact IRS

Each year is a new number

Protecting your Tax Data

What Kind of Resources are Available

IRS Identity Protection Specialized Unit –

What Kind of Resources are Available

Bonus - Some Additional Steps

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