How to Report Tax Fraud to the IRS

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One of the most popular crimes involves criminals stealing one's identity and then claiming fake tax returns. You may not find out you've been scammed until your return is rejected. Just a few years ago, the IRS stopped almost 800,000 fake returns adding up to $4 billion of refunds. Fraud happens every day, so it’s always important to know how to handle a situation like tax fraud.

 
 

Know the Signs & Respond Immediately

Having your identity stolen can be a nightmare. No one wants to be a victim of tax fraud, therefore it’s highly important to know to the signs. 

  • A notification from your tax provider about multiple tax returns filed using your Social Security number

  • A refund offset that is reduced or intercepted to pay off debt that is past due

  • Receiving a notification that you owe extra taxes

  • IRS records for earned income from a company where you never worked

Never trust any type of electronic communication, including email or text, from anyone claiming to be from the IRS. It's against the agency's policy to contact you through these channels regarding your sensitive financial information. If the IRS needs to get in contact with you they will always send you a letter regarding suspicious activity. Call the number listed inside the letter or visit the ID verification site as soon as possible. If you do get a fake email from an imposter claiming to be the "IRS", notify the real IRS at phishing@irs.gov. Other scams via phone, mail, or fax can be reported by calling 800-366-4484.

If Tax Fraud Occurs, Complete Appropriate Forms

If you do fall victim of tax fraud, you can easily print the forms you need online. You'll need to complete Form 14039, the Identity Theft Affidavit.

Along with the Form 14039, you'll need to also give them the following information:

  • Your contact information

  • A copy of legal identification (driver's license, passport, social security card)

  • A short description of the issue and how you became aware of it

  • List of any crucial dates related to the identity theft

File Your Completed Tax Return

Calculate, pay any taxes you owe, and attach your return along with the completed Form 14039. Include all information needed and a photocopy of a document verifying your identity. Follow the instructions and send these files by mail or fax. Make sure to keep copies of everything you send to the IRS, you’ll receive a letter when they receive your Identity Theft Affidavit and tax return.

Work Together with the IRS

After you've submitted your forms and tax return, you will be assigned to the Identity Theft Victim Assistance organization. Your case will be handled by an employee specialized to help you so it's important you cooperate thoroughly with them. The good news is that most cases are typically resolved within 120 days. If your case is more complex, it could take up to 180 days or longer.

Protect Yourself at the State Level

It's a smart idea to also contact your local state tax agency to ensure you're protecting yourself within your state as well. Each state has their own set of regulations, forms, and laws. Be prepared to explain how you found out about the fraud issues and provide your name, address, marital status, supporting documents, and asset information.

Ways to Prevent Identity Theft

By understanding how to prevent identity theft you can protect your sensitive information moving forward and prevent criminals from taking advantage of you. If you've been a victim, the IRS suggests that you file an online complaint at identitytheft.gov. Contact banks, financial institutions, and close all accounts that have been illegally opened in your name.

Reporting Suspected Tax Fraud Activity

While identity theft is a huge type of tax fraud, the IRS also needs help weeding out any individuals or businesses that use altered documents, don't report income, are involved in organized crimes, fail to withhold, or claim fake exemptions/deductions.

If you know or suspect someone is committing tax fraud, you can report it by using Form 3949-A. Be warned, if you call the IRS they will not listen to any tax fraud claims over the phone or on their website, you must mail the correct form mentioned above. If you wish to send a letter to the IRS, they will need the following information. Regardless, everything must be completed only through the mail.

  • A complete description of the fraud

  • Name of person or business

  • Address of person or business

  • Person's Social Security number 

  • How you know about the fraud

  • Documents or evidence related to the fraud

  • The estimated amount of unreported income

You can choose to be anonymous, or list your name, address, and phone number to be reached.

If you do choose to report tax evasion on a person or business, you could qualify for a reward through the IRS Whistleblower Office. Submit Form 211 which will make you eligible for a "whistleblower" award if they collect tax based on the information you provided. The amount has to be substantial in order for you to receive an award, over $200,000 for individuals or $2 million for businesses per year. Typically the reward is 15-30% of the taxes owed. More information about rewards and being a whistleblower can be found here.

List of Other Suspected Fraud Forms

  • Tax preparer fraud - Form 14157 (and possibly Form 14157-A)

  • Abusive tax promotion or promoter - Form 14242

  • Wrongdoing by an exempt organization or employee plan - Form 13909

  • Fraudulent IRS emails/websites - Contact IRS immediately on its phishing web page or email phishing@irs.gov

Benjamin Buczek