Updated Verification Process for E-Filing Your 2017 Tax Return

Fighting Tax-Related Identity Theft Is an Ongoing Effort

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As the problem of identity theft became more and more significant in the millennium, the Internal Revenue Service got involved. The Security Summit was created when the IRS teamed up with professional tax preparers, state taxing authorities, and tax software providers, forming a coalition to wage war against fraudulent returns, largely through verification process updates. 

Members got together in late November 2017 for National Tax Security Awareness Week.

They formulated some new safeguards for 2018 that you might encounter when you file your 2017 return. Don’t worry—you probably won’t even be aware of most of them unless you e-file. 

So What’s Different With This Verification Process?

The Security Summit’s efforts focus specifically on thieves who impersonate taxpayers, using someone else’s Social Security number to submit tax returns and collect refunds that they’re not entitled to. Stolen Social Security numbers can also be used to secure employment. The Summit’s ongoing goal is to make these things more difficult.

You’ll have to jump through a few more hoops to log in if you use tax software to prepare your 2017 federal return, and several states have individually ramped up verification procedures for their returns as well. The Federation of Tax Administrators offers a list of state links so you can check for any new rules that are unique to the state where you live or work.

“Data Elements”

You’ll have to answer a few more questions this year to confirm your identity—questions that only you should know the answers to, including your adjusted gross income from last year’s return.

These questions, as well as other information that you enter into the software to prepare your return, are “data elements.” They’re shared with the IRS to help confirm that you really are who you say you are.

37 new data elements have been added for 2017 tax returns, and more than 20 states are developing similar systems of their own.

W-2 Verification Codes

You might notice a new 16-digit verification code on your 2017 Forms W-2 as well. This initiative was actually launched back in 2016 on about 2 million W-2s, but roughly 50 million forms for the 2017 tax year now include this number in box 9 so you're more likely to encounter it. Be prepared to provide it if you use tax preparation software. 

Changes to E-Signatures

As for “signing” your e-filed tax return, that procedure has changed a bit, too. You can only do this through an ERO—an Electronic Return Originator—but that’s nothing new and both tax software and legitimate tax preparers should qualify. The difference is that you’ll have to answer a few more questions this year even after you log into your software to prepare your return.  

These questions are typically multiple choice, such as what city or town you last lived in or the identity of your employer 10 years ago. The software might then make a “soft” inquiry to your credit report to confirm your answers. Don’t worry, these inquiries don’t affect your credit score in any way. They’re clearly identified to note that the inquiry was not made because you requested additional credit and they only appear on credit reports you request yourself—potential lenders don't see them.

You can tackle this verification process up to three times. If you don’t get your answers right on the third effort, you’ll have to print out your return, physically sign it, and mail it in.

If you’re using the services of a professional for the first time and he doesn’t know you because he’s been doing your taxes for years, he might ask for your driver’s license or other photo ID, as well as additional identifying documents.

What to Do If All These Efforts Fail

Incidents of tax-related identity theft dropped by 40 percent in calendar year 2017 thanks to ongoing efforts like these. That’s pretty remarkable, but do the math. A good many identity thieves were still successful last year. 

In most cases, you’ll know relatively soon if you’re a victim. You might attempt to e-file your 2017 tax return only to have it rejected because someone else has already filed one using your Social Security number.

The IRS might pick up on something suspicious and reach out to you for further information. In this case, you’ll most likely receive a “5071C letter.” The letter will include instructions for verifying your identity.

You’ll also want to complete and submit Form 14039, the Identity Theft Affidavit, to the IRS. You should only take this step, however, if your e-filed return has been rejected or if you receive a request to do so from the IRS. Otherwise, you can call the IRS at 1-800-908-4490 for guidance.

If you have another reason to believe that your tax identity has been compromised, contact the Federal Trade Commission to file a complaint. You can do this even if you don’t know the identity of the thief. You’ll want the incident on record—whatever it was that triggered your suspicion. 

Consider placing a fraud alert with the three major credit reporting agencies as well. Technically, you only have to contact one of them—they’re legally obligated to share the information with the other two, but it might offer you an additional layer of comfort if you reach out to all three of them personally.

Be on Your Guard

Remember—the IRS is devoted to the U.S. Postal Service. It will never email you to request information. It won’t telephone you, either, at least not out of the blue. Telephone communications are pretty much limited to existing, ongoing issues with the IRS. An agent will never call you to request personal information such as might be necessary to verify your identity and your tax return.

If you receive suspicious emails or telephone calls from someone claiming to be with the IRS, notify the IRS immediately.