IRS warns tax pros about signs of ID theft

The Internal Revenue Service is teaming up with state tax authorities and the tax prep industry to alert tax professionals about some of the warning signals of taxpayer identity theft.

As part of their Security Summit initiative, the IRS and its partners have been mounting a public awareness campaign this summer about cybersecurity risks for tax professionals (see story). On Tuesday, the Security Summit highlighted the signs of identity theft.

The effort comes amid reports of an unprecedented wave of billions of dollars in fraudulent claims for unemployment benefits and other forms of federal and state aid during the COVID-19 pandemic after the government eased the guardrails for applying to the programs. Many of the scammers have been operating outside the U.S., but have been filing claims using the stolen identities and personal information of U.S. citizens they gained through data breaches. Tax professionals, with the wealth of data residing on their clients’ tax returns, have needed to be especially vigilant.

“There are tell-tale signs of identity theft that tax pros can easily miss,” said IRS Commissioner Chuck Rettig in a statement. “Identity thieves continue to look for ways to slip into the systems of tax pros to steal data. We urge practitioners to take simple steps and remain on the lookout for signs of data and identity theft. They are a critical first line of defense against identity theft.”

Andrew Harrer/Bloomberg

The IRS said that tax professionals who report data thefts often say that they did not immediately recognize the tell-tale signs. The agency and its partners are asking tax professionals to watch out for these critical signs:

• A client’s electronically filed tax returns were rejected because their Social Security Number was already used on another return.
• The preparer receives more e-file acknowledgements than the number of tax returns they filed.
• Clients have responded to emails that the tax preparer didn’t send.
• They see slow or unexpected computer or network responsiveness such as software or actions that take longer to process than usual.
• The computer cursor moves or they see changes in numbers happen without their touching the mouse or keyboard.
• The tax pro is unexpectedly locked out of a network or computer.

Practitioners should also watch out for when clients report that they have received:

• IRS authentication letters (5071C, 4883C, 5747C) even when they haven’t filed a return;
• A tax refund even if they haven’t filed a tax return;
• A tax transcript they did not request;
• Emails or phone calls from the tax pro that they didn’t initiate;
• A notice that someone created an IRS online account for the taxpayer without their consent; and,
• A notice that the taxpayer wasn’t expecting that someone accessed their IRS online account, or the IRS disabled their online account.

Tax pros should also make sure they have the highest security possible.

If a tax pro or their firm falls victim to data theft, the IRS suggests immediately reporting it to their local IRS Stakeholder Liaison, which will then notify IRS Criminal Investigation and others within the service. If the incident is reported quickly, the IRS can soon take steps to block fraudulent tax returns in the clients’ names.

The IRS also recommends that tax pros who fall prey to identity theft should email the Federation of Tax Administrators at StateAlert@taxadmin.org to report victim information to the states. Most states require that the state attorney general be notified of data breaches. The notification process could involve multiple offices.

The service provides a number of other resources at Data Theft Information for Tax Professionals.