Victimized by tax fraud? Here's what to do

For most taxpayers, this is the time of year to be looking forward to a tax refund, but it's also is the time tax fraudsters like the best.

One of the fastest growing crimes is ID theft involving a fraudulently filed tax return by someone who has your Social Security number and tries to get your refund. Unfortunately, most victims find out only when they try to e-file their tax return. Instead of getting confirmation from the IRS of a properly filed return, they get a rejection because a tax return in their name has already been filed.

If this happens to you, here are the steps the IRS advises taking:

  • File your return by paper, if you are unable to e-file.
  • Include a completed Form 14039, Identity Theft Affidavit with your paper tax return.
  • When the IRS receives your Form 14039 and paper return, your case will be sent to its special Identity Theft Victim Assistance organization, and you'll receive an acknowledgement letter.

If all goes as it should, your return will be processed, your refund will be released and the fraudulent return will be removed from your tax records. Expect the entire process to take 120 to 180 days. Also, prior to the start of next tax season, you'll receive a letter with a special Identity Protection Personal Identification Number that you'll use to protect your future returns.

If the IRS suspects you're a victim of ID theft even before you detect it, you may get a special 5071C Letter. The IRS uses this letter to inform you that it has received a tax return filed with your name and Social Security number that it believes may be suspicious. It will ask you to verify your identity at the IRS' special identity verification website or by calling a special phone number provided.

The IRS says once it has verified your identity, it will continue processing your return and provide confirmation that you've submitted it. If you've been selected for this verification process, the IRS says to expect to wait about six weeks as it processes your return.

The IRS also allows you to obtain a copy of the fraudulent return. You must be the primary or secondary taxpayer, and some of the information on the return will be blacked out.

Finally, one of the best things you can do to minimize your odds of this fraud is to file your tax return as quickly as possible. In that way, if the fraudulent return is filed after you've already filed the real one, the fraudsters' is more likely to be rejected.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.