What Happens When a Fraudulent Tax Return Is Filed?

The IRS has implemented programs and policies to combat identity theft

Tax forms for previous years. People who need to file late tax returns can get a break on penalties during a tax amnesty.

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We all know that we’re supposed to protect our Social Security numbers (SSNs) at all costs. Don’t carry your card in your wallet or give the number to anyone who doesn’t have a valid reason for requesting it. Identity thieves can wreak all kinds of havoc with that simple nine-digit number, from taking out loans in your name to—as discussed here—filing a fraudulent tax return using your identity.

Tax-related identity theft usually occurs because someone is trying to collect a tax refund you’re entitled to before you file your return and ask for it. Fraudsters tend to file immediately, as soon as the IRS officially opens its doors to begin processing returns for the year. The idea is to beat you to the punch. The thief will have that refund in hand—or spent—long before you get around to firing up your tax preparation software.

How Do You Know If You’re a Victim?

Taxpayers often learn about this kind of fraud when they attempt to e-file. As they start the tax preparation software, they will be informed that they've already submitted a return. Unless you simply forgot doing your taxes—which is unlikely—this is a serious red flag that suggests you have been targeted by fraud.

Sometimes the Internal Revenue Service (IRS) picks up on a suspicious oddity in a return filed in your name. This is the best-case scenario because, if the IRS suspects potential fraud, it won’t send out any refunds until the matter has been cleared up. The IRS will also catch the problem if you mail your return the old-fashioned way rather than e-file after the IRS already has a current tax return on file for you.

The IRS will send you a notice if it detects a problem, either a “Letter 5071C” or “Letter 4883C,” depending on why your case was flagged. The IRS will ask you to confirm your identity and tell you how to do so.

If your e-filed return was rejected, it's up to you to let the IRS know.

What to Do? File Form 14039

If your e-file return was rejected because the IRS already has a return for your SSN, you’ll have to file a paper return. Include Form 14039, the Identity Theft Affidavit, with your return.

Don’t submit the form unless your e-filed return was rejected or you received notice from the IRS (one of those 5071C or 4883C letters) telling you to do so. 

You can complete Form 14039 online, then, print it out and mail it. Given the nature of the problem, you might want to do this by certified mail, with a return receipt requested, so you're sure this information hasn't somehow fallen into the wrong hands.

If you're responding to a letter from the IRS, it should tell you where to mail all these documents. Otherwise, if your e-filed return was rejected, you will have to do a little legwork to figure out where to send your form. The IRS has a webpage with states listed to help you find the relevant mailing address for your situation.

You can contact the Taxpayer Protection Program at 800-908-4490 if you have any questions or need guidance. The IRS has implemented this program to help taxpayers with identity theft situations.

Confirm Your Identity

The IRS notice might also ask you to confirm your identity. You can do this online at the Identity Verification Service offered by the IRS.

Make sure you have a prior year’s tax return at your fingertips. That will go a long way in assuring the IRS that you really are who you say you are. You’ll need information from that return to confirm this. You'll also be asked for your date of birth and SSN.

What Happens Next? 

The IRS will acknowledge receipt of your Form 14039 if you sent one, and it will turn the matter over to its Identity Theft Victim Assistance Program (IDTVA) to investigate the matter. You should receive notification that this has been done.

Otherwise, if you've been asked to confirm your identity, you can tell the IRS that you didn’t file the suspicious return in question. The appropriate number to call should appear on your notice. They’ll pluck the return out of their system—no refund will be sent to the identity thief.

The IRS will also tag you in its system as an identity theft victim or potential victim. This is intended to divert other similar attacks in the future. Depending on the specifics of your circumstance, you may be entered into the Identity Protection PIN program—you'll get a new PIN every year to add an extra layer of security to your returns.

Most cases of ID theft are resolved within 120 days, but it is possible that your case could take 180 days or longer.

Protect Yourself Against Further Scams 

Remember that the IRS will almost always initiate contact with taxpayers via mail—so if you receive an urgent email or phone call out of the blue from someone claiming to be with the IRS, it's probably a scammer. Report online and email incidents to the IRS at phishing@irs.gov. You can report impersonation scams with the Treasury Inspector General for Tax Administration. You can report phone scams to the Federal Trade Commission.

Don’t neglect to check with your state’s revenue department, as well, if you’re a victim of federal tax ID fraud. It’s possible that the thief didn’t stop with your federal tax identity.

Let your local police know what’s happened if you’ve been targeted as a victim. Make it a matter of official public record. Keep in mind that if a thief has your SSN, they might not stop at using it to file a fraudulent tax return. It may be best to reach out to your financial institutions and freeze your credit with the “big three” credit reporting agencies.