Personal Finance

ID Tax Theft: What to Do Next

Your letter from the Internal Revenue Service says a bogus tax return was already filed in your name. Or your electronically filed return bounces back because fake returns are already on file with your Social Security number ( SSN ). Surprise: You may be the victim of identity theft. What can you do?

First, recognize how easy it is to hijack your personal data. "To file a tax return electronically, all someone needs is a name, date of birth and a Social Security number," writes technology editor Matt Hunter with NBC News . "The IRS accepts tax filings as soon as Jan. 1, but employers aren't required to submit correct employment information to the agency until March, by which time roughly half of all refunds have been paid."

Hunter further cites a fraud specialist as saying, "An imaginative crook in possession of the three basic items of a person's identity could make up fake … information and submit it and get the money within 30 days."

If the IRS suspects you fell victim to ID theft, the agency mails - and not emails - you a letter with one of these codes in the upper-right corner near the date: Form 5071C, Letter 12C; Letter 148A or CP 148B; or Letter 4883C.

We've written about identifying a fraudster posing as the IRS. Never hesitate to contact your advisor or accountant about any communication you receive that generates questions or concerns, with or without the above codes.

You can take preventive actions to minimize the possibility of someone stealing your identity. First, let's go over what to do if the crime already happened.

Notify your professional advisors immediately. This includes your investment or financial advisor, as well as your tax preparer. Do not email a copy of the notice you received. Instead, upload it to your advisor's secure client portal or otherwise use a secure method for sharing the information.

Respond to the IRS, immediately and persistently. Respond promptly according to the directions on the notice. Phoning the IRS may take time; keep trying to get through.

Complete IRS Form 14039, "Identity Theft Affidavit ." Continue to work with your tax preparer to file your returns and pay your taxes due, using paper if necessary.

Take immediate steps to minimize damage. Follow the procedure on the Federal Trade Commission ( FTC ) website, " Immediate Steps to Repair Identity Theft ," which includes but is not limited to:

1. Contacting one of the three major credit bureaus to set up a fraud alert on your records. (The first company you contact supposedly alerts the other two. Confirm this with the agent.)

2. Requesting and reviewing copies of your free annual credit reports from each of these companies and telling them that you placed an initial fraud alert.

3. Filing an identity theft complaint/affidavit with the FTC and filing a report with your local police (include your FTC theft affidavit).

Follow up to resolve any lingering issues. For guidance, see the FTC's " Repairing Identity Theft ," and follow the steps for "What to Do Next."

To reduce your risk of becoming a victim of ID theft, don't carry your Social Security card or any document with your SSN on it. Don't give any business or agency your SSN just because they ask.

Annually check your Social Security earnings report for incorrect earnings data and your credit report for bogus accounts; and give out no personal information on the phone, through the mail or via the Internet unless you initiated the contact or you're certain about who asks for the information.

Among other steps:

  • Protect your personal computers with firewalls , antivirus software or spam filters (preferably all three). Keep operating systems patched and up to date on current releases.
  • Use secure passwords. Generally, longer passwords offer the strongest protection.
  • Protect personal financial information on your home computer. Documents containing lists of passwords also need protecting.
  • Don't respond to out-of-the-blue calls, email, faxes or texts claiming to be from the IRS. The IRS always begins correspondence with a postal letter.

Follow AdviceIQ on Twitter at @adviceiq.

Sheri Iannetta Cupo, CFP, is a principal of SageBroadview Financial Planning with offices in Morristown, N.J., and Farmington, Conn. The SageBroadview blog covers a wide range of financial planning and life topics.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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