THE LAW OFFICES OF ROBERT S. STEINBERG

Practice Limited to Taxation

MORE ON TAX IDENTITY THEFT

Posted on 06/05/2013

A Wall Street Journal Article of April 12, 2013 by Laura Saunders summarized some startling facts about Tax ID theft, namely:

  • Through that date in 2012, IRS had identified 1.8 million tax-related ID thefts. This quadruples the number identified in 2010.
  • IRS has responded by expanding its criminal enforcement efforts, strengthening its screening filters and collaborating on ID theft prevention measures with 130 financial institutions.
  • Getting ID theft cases resolved with IRS can take an average of six months but in some cases the wait is much longer with refunds sometimes held up for a year or longer.
  • CPAs helping clients resolve ID theft cases with IRS are spending from six to ten or more hours on ID theft cases. This can become expensive for the client because, although a professional may discount fees for long-term clients, one cannot afford to provide pro bono services for many clients. A professional’s time is akin to a merchant’s inventory and is limited by workable hours in a day, month, or, year. A CPA (or attorney) can give away only so many hours and survive financially. We have bills to pay just like everyone else.
  • IRS has 21 separate units working on various aspects of ID theft.
  • Ripple effects of tax ID theft can include:
    • Hold-ups on mortgage refinancing since IRS suspends releasing tax information until the ID theft is cleared. This is especially hard on self-employed taxpayers who don’t even have a Form W-2 they can give to the bank.
    • Student financial aid applications also are impacted although an agreement between IRS and the U.S. Department of Education allows students to submit a signed copy of their paper return along with a copy of the IRS ID Theft Affidavit and police report.
    • Social Security may base Medicare premiums on the bogus return showing lower income than actually earned. The taxpayer will be overpaid and required to eventually return excess funds to SSA.
    • Payments to IRS will have to be made with a check and payment voucher 1040 V if a return is rejected by the IRS e-file system. Taxpayers should save a copy of the check, voucher and reject notice in case it is necessary to ask for an abatement of penalties assessed. Do not send a cover letter with the payment, however, as that will delay processing of your payment.

ID Theft is but one natural consequence of modern digital technology and will grow even more common as sophisticated criminals continue to migrate from physical to virtual crimes. We are now in an adaptive phase. Hopefully the good guys will catch up to the bad guys and gain an edge: but, I fear that the bad guys will figure out how to navigate around the new screens, filters and other defensive measures. So, ID Theft will continue to sharpen one edge of the digital sword while convenience sharpens the other edge. The sword swings and we experience the agony and ecstasy of digital life.

For more Tax ID Theft information see post of February 21, 2013, “IRS Explains What You Should Know About ID Theft and Taxes.”

© 2013 by Robert S. Steinberg, Esquire
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