irs identity theft efforts and 2013 filing season improvements january 29, 2013 small...

IRS Identity Theft Efforts and 2013 Filing Season Improvements

January 29, 2013

Small Business/Self-Employed

Identity Theft

It is not a new problem

The most misused SSN of all time…

• Happened more than 70 years ago • Involved Social Security cards “issued” by Woolworth

• At peak, nearly 5,800 people were using this SSN• More than 40,000 reported this as their own SSN• As late as 1977, 12 people were still using the SSN

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• Identity theft: number one consumer complaint reported to FTC

• Incidents related to government benefits

–most common

–more complex and

– require more time and money to detect and resolve

• Over the past few years, the IRS has seen an increase in refund fraud schemes in general and those involving identity theft in particular

A persistent threat to taxpayers

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How identity theft affects taxes

• Scenario 1: Refund-related crime–Identity thief uses stolen SSN to file

forged tax return and obtain refund early in the filing season.

• Scenario 2: Employment-related crime–Identity thief uses a stolen SSN to

obtain employment.

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IRS response to identity theft

• Identity theft is a top priority for the IRS. We understand this is a frustrating situation for victims.

• While identity thieves steal the information from sources outside the tax system, the IRS is sometimes the first to inform an individual that identity theft has occurred.

• We are committed to continuing to improve our identity theft protection programs.

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Combating tax-related identity theft

• Goal: prevent identity theft and detect refund fraud before it occurs and assist taxpayers who are victims

• Actions: Building on successes and making more improvements for the 2013 filing season

• We’ve developed a comprehensive identity theft strategy focused on:

– Prevention and detection– Protection – Victim assistance

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IRS protection efforts

• Identity theft indicators

• Business filters

• Combating refund fraud

• Taxpayer notification

• Locking tax accounts

• Identity Protection Personal Identification Numbers(IP PINs)

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Improved reject codes for locked accounts of deceased taxpayers

MeF reject codes related to locked accounts are more specific

• IND 901IND 901: The primary SSN in the return header has been locked because the Social Security Administration records indicate that the number belongs to a deceased individual

• IND 941IND 941: The spouse SSN in the return header has been locked because the Social Security Administration records indicate that the number belongs to a deceased individual

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Identity Protection PIN

• IP PIN is a six-digit number assigned to certain taxpayers who:

– Were identified as identity theft victims

– Submitted required documentation

– Had their account issues resolved

• Not all taxpayers with identity theft indicators on their account received IP PINs for tax year 2011 because the 2011 program was a limited expansion of a 2010 pilot.

• For tax year 2012, the IRS is further expanding IP PINs to more taxpayers

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What does the IP PIN do?

• Allows legitimate return to bypass identity theft filters

• Prevents processing of fraudulent returns

• Helps minimize processing delays related to identity theft

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Key IP PIN information

• The IP PIN is specific to the tax year

• A new IP PIN issued every year

• The IP PIN should not be confused with the electronic signature ‘self-select’ PIN or the preparer’s PTIN.

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Receiving the IP PIN

• Beginning with TY 2012, most IP PIN notices will be systemic CP notices. This will reduce processing time and mailing errors. CP notices will be sent to the address of record with IRS

– If a taxpayer has changed their address since they filed their last tax return, they will need to file a Form 8822 to change their address with IRS

• In early November, taxpayers who are IP PIN eligible received a CP 01F notice notifying them of their eligibility to receive an IP PIN and basic information about the program.

• In mid December, taxpayers who are IP PIN eligible (including accounts resolved in November) will receive a CP 01A notice that contains the IP PIN and instructions for using it.

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Key IP PIN information

• Only the primary taxpayer on any return is affected by the IP PIN and only the primaryprimary taxpayer on the return must input the IP PIN if they received a CP 01A with an IP PIN.

• If the primaryprimary taxpayer on the return did not receive an IP PIN, any information included on the return as an IP PIN will have no effect on the filing of the return.

• If the primaryprimary taxpayer on the return received an IP PIN, the IP PIN must be both present and correct in order to e-file the tax return.

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Using the IP PIN on joint returns

• If the primary taxpayer on the return received an IP PIN, the IP PIN must be both present and correct in order to e-file the tax return.

• If the spouse taxpayer on the return received an IP PIN, they do not need to enter the IP PIN on the return and do not need to change their order of filing.

– The spouse will continue to be protected by preventing a thief from filing a tax return using the spouse’s SSN as the primary SSN.

• If both taxpayers receive an IP PIN only the primary taxpayer should include their IP PIN on the return.

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If the IP PIN is required but isn’t used

• Electronic return will be rejected

• Taxpayer can request a replacement IP PIN

• Return may be resubmitted with IP PIN

• If a taxpayer lost their IP PIN and did not request a replacement, they must file a paper return

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IP PINs and new MeF reject codes

• If the IP PIN is required and present, but not correctbut not correct:

IND 180: The Identity Protection Personal Identification Number (IP PIN) must match the e-file database. Please double check your entry and re-submit your return with the correct number.

• If the IP PIN is required but not presentnot present:

IND 181: The primary taxpayer did not enter a valid Identity Protection Personal Identification Number (IP PIN). Please refer to Notice CP 01A for further information and resubmit your return with the correct number if applicable.

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Using tax preparation software

• Interview-driven software asks for IP PINs and provides instructions

• Forms-based software provides guidance on IP PIN location

• Using tax preparation software to print/file paper return:

• IP PIN should not print as part of tax return’s record or on paper copies to be mailed

• Taxpayer should write IP PIN in the space provided on the appropriate 1040 series form

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Six boxes to right of spouse’s occupation

IP PIN placement on paper returns

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IP PIN guidance for tax professionals

• Ask every client if they received a letter from the IRS containing an IP PIN

• If so, input the IP PIN in the proper area

• Check with your software provider for the location for the IP PIN

• If your client says they did not receive an IP PIN letter, continue preparation as usual

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Lost or misplaced IP PINs

• Taxpayer (or qualified POA) should contact the IRS (800 number, IPSU or walk-in center).

• Starting with tax year 2012, the IRS will immediately issue the taxpayer a replacement IP PIN after identity validation.

• This replacement IP PIN will allow the taxpayer to e-file but will notnot allow the return to bypass the business filters.

• Returns with a replacement IP PIN will unpost for an additional review for the taxpayer’s protection.

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• The IPSU is the central point of contact for taxpayers who are reporting their identity as stolen- Toll-free number: 800-908-4490

- Monday - Friday, 7 a.m. - 7 p.m. local time

• Taxpayers can:

- Self-report they are victims before or after their tax accounts are affected.

Identity Protection Specialized Unit

Tax Practitioner Due Diligence

• Treasury Department Circular No. 230 (Rev. 8-2011), Section 10.22, requires practitioners to:

Exercise due diligence when preparing or

assisting in the preparation of filings for

submission to the IRS, and that they determine

the correctness of the representations they

make, both to the IRS and to clients

• Tax practitioners play a role in the protection of the integrity of the tax filing system through their efforts to authenticate the identity of their clients.

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Helping clients avoid identity theft

• Ensure they safeguard their personal information

• Instruct them to regularly check credit reports and other financial records

• Remind them: The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes electronic communication, such as text messages and social media channels

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If a client experiences identity theft

They should:• Contact their financial institutions• Contact the three credit bureaus to place a

fraud alert and get free credit report copies • File a police report with local law enforcement• Contact the Federal Trade Commission:

www.consumer.gov/idtheft/index.html •Contact the IRS; complete Form 14039, the Identity Theft Affidavit

2013 filing season improvements

• More than doubled filters to detect potential identity theft

• New review process when multiple refunds are issued to same address or account 

• Expanding the partnership with financial institutions to reject questionable deposits

• Introducing a limited pilot process for further authenticating taxpayers’ identity before processing questionable returns.  

• Further expanded the law enforcement pilot program, now in nine states, so identity theft victims can authorize the IRS to share information with local law enforcement.

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2013 filing season improvements

• Additional assistors trained in identity theft issues

• Improved reject codes for locked accounts of deceased taxpayers

• Increased use of the account locking mechanism to prevent future misuse by identity thieves

• Enhanced functionality of the Identity Protection PIN

• Improved IP PIN replacement process

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Questions?

IPPINQuestions@irs.gov

IPPINFeedback@irs.gov