Posted on December 2, 2015 in ,

Protecting Yourself from Tax Fraud

Identity theft is one of the fastest-growing crimes in the United States. According to the Treasury Inspector General for Tax Administration, tax refund fraud is expected to hit $21 billion by 2016, up from just $6.5 billion two years ago. Preventing this type of fraud is one of the biggest challenges facing the IRS. The IRS has been heavily criticized lately for its outdated fraud-detection system, requiring only a name, date of birth, and social security number to file a false return.

In an effort to offer additional protection to filers, the IRS is again offering the Identity Protection Personal Identification Number (IP PIN) to all taxpayers who filed their federal tax returns last year from Florida, Georgia, and the District of Columbia. This pilot program will be used to help determine taxpayer demand for the IP PIN and the IRS’s ability to issue the PIN to a large number of taxpayers.

The IRS IP PIN is a 6-digit number that acts as an authentication number to validate the correct owner of the social security number on the tax return. The PINs are assigned to victims of identity theft whose cases have been resolved so that they can avoid delays in filing returns and receiving refunds going forward. However, as a part of the pilot program, this additional layer of protection is not limited to just identity theft victims, but to all taxpayers who filed last year from the aforementioned states. These locations have the highest per-capita percentage of tax-related identity theft.

Once you receive an IP PIN, that PIN is used to confirm your identity on your current federal tax return and any delinquent returns filed during the calendar year. The PIN you receive will only be used during the calendar year; the IRS will send you a new IP PIN each December by postal mail. If a return is filed electronically and does not include the IP PIN or includes an incorrect IP PIN, the return will be rejected and will not be able to be filed electronically without the correct IP PIN. Failure to include the IP PIN on a paper return will result in a delay processing your return and issuance of any refund, as your return will be subject to greater review while the IRS determines that it is your return.

Taxpayers interested in this additional filing protection should visit to register and create an account. The IRS has provided a broad list of Frequently Asked Questions that addresses unique filing situations in the context of these IP PINs that will apply to various filers. For additional guidance on filing your tax return or on IRS IP PINs, please seek the advice of a trusted tax professional.

There are additional measures that taxpayers can take to prevent identity theft and tax refund fraud. In Part II, we will discuss some of the most recent tax scams, what to look for to identify these scams, and what you should do if you think you are being targeted or may be a victim of tax fraud.

Peter C. Golotko, CPA/PFS, MBA is President and CEO of CPS Investment Advisors.  Leighann Davis, Portfolio Analyst at CPS Investment Advisors, is a contributing author of this article.

Sources: Internal Revenue Service, U.S. Department of the Treasury