Neuswanger: Identity theft can take many forms, including tax return theft (column)
The Mountain Mortgage Guy
When you go to apply for a mortgage, suddenly finding out you are a victim of identity theft is the last thing you need. It can derail your plans and take months to clear up. Identity thieves used to be content with running up your credit card or cleaning out your bank account, but those scams have actually gotten harder, so they have moved onto easier pickings.
The IRS received nearly 450,000 complaints of tax identity theft last year, and it is so prevalent that they have established an entire division to deal with the problem.
Tax ID theft can take several forms. One trick is the thief will file a tax return claiming they are owed a hefty refund, and the IRS will promptly send them a check and it will suddenly be deposited in an offshore account that cannot be traced. When the taxpayer files his taxes and claims a legitimate refund, the IRS either refuses to pay the refund or, if they do pay it, can come back later and demand the overpayment made to the scammer back immediately, causing no end of stress for the legitimate taxpayer.
Social Security Tricksters
Another form of tax ID theft is if someone who may not have a Social Security number (or doesn’t want to pay taxes) gives his employer a phony one that does belong to someone but claims a large number of exemptions so there is little if any withholding.
His employer then files the W-2 with the fake tax ID number on it and that income is credited to that Social Security number as taxable income. When the IRS finally gets around to reconciling what income was reported on the tax return versus what income was filed for the Social Security number, the legitimate taxpayer will get the bill for tax on income he did not ever receive and have to prove differently.
For years, people have been told to check their credit reports to watch for signs of ID theft, but now it is becoming apparent that is not really enough. The IRS now recommends taxpayers periodically submit a 4506-T form, requesting a transcript of their tax account activity. This will show, amongst other things, all taxable activity associated with a given Social Security number. It will detail income reported, taxes paid, returns filed and the like. If there is income reported or refunds paid that you don’t know anything about, then you need to take immediate action.
To complete this process, go to the irs.gov and find form 4506-T (not 4506, there is a difference). You can complete the form and select the tax years you want to check out, and be sure to check the box that says “account transcript.” This is important because if you check the box “return transcript” you will only get the information you probably already know about that you put on your return. The account transcript will have far more detail and show if there are any unknown activities on your Social Security number. This process can take about two to six weeks.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342.
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