How to report tax fraud

The IRS is cracking down on tax fraud to help victims of identity theft avoid having their tax refunds stolen. In 2017, the number of tax fraud victims declined by 32 percent, and $6 billion in tax returns were protected. Overall, the percentage of victims of tax-related identity theft has decreased by almost two-thirds since 2015. But it’s important to know how to report tax fraud, as it can still happen to anyone.

Follow these steps to report tax fraud to the IRS. 

How to Report Tax Fraud to the IRS

You might not find out about the scam until your e-filed return is rejected or the IRS notifies you that you already filed a return or that it suspects foul play. If this happens to you, you can do a few things to rectify the situation. Here are the steps you need to report tax fraud and secure your tax refund:

1. Respond Immediately to the IRS

No one wants to be the victim of tax fraud or tax scams, so it’s important to be aware of signs that your identity has been stolen. Signs include multiple tax returns filed using your Social Security number, receiving a note that you owe additional taxes, a refund offset, or have had collection actions taken against you for a year that you didn’t do any tax preparation, or IRS records indicating that you earned income from a company that you didn’t work for.

If the IRS sends you a letter about a suspicious return for your Social Security number, call the IRS at the number listed in the letter. 

Don’t respond to any emails, texts or phone calls that claim to be from the IRS. It’s against the agency’s policy to initiate contact with taxpayers by email, text message or social media channels to request personal or financial information. Should the IRS need to contact you, they would do so by mail first.

If you receive fake IRS emails, forward them to the IRS at phishing@irs.gov. Then be sure to delete the original emails. If you suspect you’ve received a possible phishing scam by phone or fax call, report IRS impersonation scams to Treasury Inspector General for Tax Administration using the online form.

Related: 6 Best Identity Theft Protection Options

2. Complete IRS Form 14039, Identity Theft Affidavit

Complete the printable IRS Form 14039, Identity Theft Affidavit. This is the key action you must take to report tax fraud if you are not able to file your return electronically. The form alerts the IRS that you can’t file your return because a return was already filed with your Social Security number. It is also the form you must fill out if the IRS sends you a notice when there is suspicious activity regarding your Social Security number. 

Along with the form, you’ll need to provide personal information including:

  • Your contact information
  • An explanation of the issue explaining how you found out about it

RELATED: Check out these tax breaks that are no longer available: 

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5 tax breaks no longer available

1. Personal exemptions

For 2017, eligible taxpayers could claim an exemption for themselves and a spouse as well as exemptions for dependents. Each such exemption reduced taxable income by $4,050.

For 2018, however, there are no personal exemptions. Tax reform suspended them, basically meaning it made them temporarily unavailable.

Specifically, personal exemptions and many other tax breaks that were suspended by the Tax Cuts and Jobs Act will be unavailable for tax years 2018 through 2025.

2. Moving expenses

You cannot deduct moving expenses from your 2018 taxable income, either. Tax reform suspended this deduction for everyone except active-duty members of the U.S. armed forces who are ordered to relocate.

“During the suspension, no deduction is allowed for use of an automobile as part of a move,” states IRS Publication 5307, which outlines how tax reform impacts individuals and families in tax year 2018.

Tax reform also suspended the exclusion for qualified moving expense reimbursements for everyone but active-duty military members. So, if your employer reimbursed you for moving expenses in 2018, that reimbursement will be considered taxable income.

3. Casualty and theft losses

Tax reform modified the deduction for net casualty and theft losses, making it available only to taxpayers who suffered such losses that were attributed to a federally declared disaster.

Other requirements for this deduction remain in place, however.

“The loss must still exceed $100 per casualty and the net total loss must exceed 10 percent of your [adjusted gross income],” states Publication 5307.

4. Job-related expenses

Previously, folks who itemized their tax deductions could write off what the IRS refers to as miscellaneous deductions to the extent that they exceeded 2 percent of such taxpayers’ taxable income. But miscellaneous deductions are among those that have been suspended.

Miscellaneous deductions include unreimbursed employee expenses, such as:

  • Uniforms
  • Union dues
  • Business-related meals
  • Business-related entertainment
  • Business-related travel

So, if you paid for such expenses out of your own pocket in 2018 and were not reimbursed for them by your employer, you cannot write them off on your next tax return.

5. Tax preparation fees

This is another miscellaneous deduction and thus has been suspended. It includes:

  • The cost of tax preparation software programs
  • The cost of tax publications
  • Fees for filing tax returns electronically

So, if you paid any of these expenses in 2018, you can’t write them off on your next tax return.

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3. File Your Tax Return and IRS Form 14039

Print your completed Form 14039 Identity Theft Affidavit along with your tax return if you plan to mail it in. The form can also be completed online at the Federal Trade Commission and the FTC will transfer the form to the IRS.

Keep copies of anything you send to the IRS, especially tax-related documents. You should receive a letter from the IRS confirming it received your Identity Theft Affidavit and tax return.

4. Cooperate with the IRS Investigation

After you submit your forms and tax return, you will receive an acknowledgment letter and your case will be assigned to the Identity Theft Victim Assistance organization, which has employees with specialized training to help you. Most cases are reviewed and resolved within 120 days, but some complex cases might take 180 days or more.

If the IRS has not been able to resolve the matter, you can contact the Taxpayer Advocate Service, a division within the IRS to provide you with tax help. Contact your local Taxpayer Advocate Service office to speak with someone about the kind of tax-related problems you need help with.

How to Prevent Identity Theft

If criminals have enough information to file a fraudulent tax return, that might not be the only way they are taking advantage of you. If you become a victim, understanding how to prevent identity theft will help safeguard you and your private information going forward.

In addition to reporting your tax fraud situation to the IRS, the IRS suggests you notify other authorities and businesses of your stolen identity. The Federal Trade Commission recommends that you file an online complaint at consumer.ftc.gov. In addition, you are recommended to put a fraud alert on your credit report with one of the three major credit bureaus: Experian, Equifax, and TransUnion. The IRS also recommends that you contact your banks and other financial institutions and close any accounts that have fraudulently been opened in your name. You can request a free copy of your credit report at annualcreditreport.com to see if any other accounts have been opened.

Report Tax Evasion and Other Types of Tax Fraud

Identity theft isn’t the only type of tax fraud. The IRS also warns Americans to be on the lookout for individuals or businesses that don’t report income, give kickbacks or use false or altered documents, or claim fake exemptions or deductions, or are guilty of tax evasion.

If you suspect or know of someone committing tax fraud, you can report a scam using Form 3949-A. You can obtain a copy of the form by calling the IRS Fraud Hotline at 800-829-0433, but the IRS will not listen to allegations over the phone nor can you report tax fraud online at the IRS website.

You can also send a letter that includes the following information: 

  • The name and address of the person or business
  • The person’s Social Security number or employer identification number
  • A description of the fraud
  • How you became aware of the information
  • The years in which the fraud occurred
  • The amount of unreported income
  • Optionally, your name, address and phone number

If you report tax evasion, you could qualify for a reward from the IRS Whistleblower Office. However, the amount at stake has to be substantial — more than $2 million for businesses and annual income over $200,000 for individuals. If you have credible and specific information related to tax fraud, you can file IRS Form 211, Application for Award for Original Information, to apply for your reward.

Click through to read about how tax scam victims can clear their names with the IRS.

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