For many of us, identity theft, unfortunately, is an all-too-familiar topic.

Victims of identity theft and, in particular, tax-related identity theft and tax scams continue to increase at alarming rates. The Internal Revenue Service (IRS) estimates that it erroneously paid more than $5 billion in fraudulent tax refunds to identity thieves in 2013. Tax-related identity theft remains one of the biggest challenges facing the IRS … and taxpayers. As the 2014 tax filing season rapidly approaches and tax return filing and refund frauds are likely to increase, a heightened sense of awareness is vital. If you lose your wallet, have mail stolen or are the victim of a data breach, you could be at risk. Additionally, if you receive notice from the IRS that you may be a victim of identity theft or your tax return is unable to be processed, your tax refund may be in jeopardy.

If you believe you are a victim of identity theft, you can notify the IRS that you are either an actual or potential victim (in cases of a lost or stolen wallet, questionable credit card activity or credit report, etc.) by filing an IRS Identity Theft Affidavit so that the IRS will mark your account and issue an Identity Protection Personal Identification Number (IP PIN). These six-digit IP PIN numbers are unique to each taxpayer. They help to prevent the misuse of the taxpayer's Social Security number on fraudulent tax returns and to potentially avoid tax refund processing delays and erroneously issued tax refunds.

Unfortunately, tax-related identity theft is only one of many forms of tax-related scams impacting taxpayers recently. In the past year, the number of individuals affected by a rapidly growing IRS phone scam has skyrocketed, and millions of dollars have been swindled from its victims, prompting the IRS to issue warnings to the public. Callers fraudulently claim to be the IRS, often using fake names and fake IRS badge numbers to identify themselves. The caller insists that delinquent taxes are due and they must be paid immediately through a pre-loaded debit card or wire transfer. If the taxpayers resist, the caller becomes aggressive and abusive, threatening to freeze bank accounts, confiscate property or possible arrest. Alternatively, some have reported the scammers called claiming a refund is due, trying to obtain banking or other private financial information. By August of this year, nearly 90,000 instances of these phone calls have been reported across the country.

Scammers are able to manipulate caller ID systems to deceptively show that the call originated from an IRS number. The scammers, in many cases, also have the taxpayer's personal information, such as the last four digits of their Social Security number. In many cases, follow-up e-mails and phone calls are made to make the need of payment more urgent, with a sense of legitimacy.

If you receive a call from anyone claiming to be from the IRS, be aware that:

• The IRS will not call a taxpayer about tax delinquencies without first mailing an official notice;
• The IRS will not demand, via phone, that a taxpayer immediately settle delinquent tax obligations without offering the opportunity to appeal the amount owed;
• Taxpayers are not required to use a specific payment method when making payments—a variety of options are always available;
• Taxpayers will not be asked for credit or debit card information over the phone; and
• The IRS will not threaten a taxpayer with local law enforcement action for not paying the requested amount.

Additionally, the IRS does not presently use e-mail, text messages or social media to discuss personal tax matters. If you are in receipt of such a message, it is prudent to not open any attachments or click on any links contained in the message. Instead, forward the e-mail to phishing@irs.gov and consider contacting the Tax Accounting Group (TAG).

If you receive a call like the one described above and have no reason to think you owe taxes, the Treasury Inspector General for Taxpayer Administration (TIGTA) is asking you to call its integrity hotline at 1-800-366-4484 to report the incident. If you know you owe taxes or failed to file tax returns, perhaps this is a good time to resolve the issue. We will be happy to assist you.

If you think any of the foregoing cannot possibly happen to you, consider this real-life example TAG recently experienced.

TAG received a call on a Saturday morning from a well-known and successful lawyer of a small regional law firm regarding a panicked client experiencing an emergency situation. The lawyer's client received a call from an individual claiming to be an IRS federal agent, indicating he had the client's husband in custody pending settlement of an outstanding IRS debt. The caller instructed the client to meet him at a specified location with $10,000 in cash and her husband would be released from custody. She panicked and immediately called her husband's cell phone, which was not answered, resulting in a heightened state of fear. She called her lawyer to describe this horrendous experience but was too panic-stricken to listen to reason. Instead, she then went to the bank, withdrew $10,000 and met the caller at the location specified. The caller grabbed the money and ran, while the client was screaming, "Where's my husband?" She then immediately called back her lawyer, who, in the interim, contacted the Tax Accounting Group for thoughts and guidance. Fast forward a few hours. She received another call from the purported IRS federal agent, with another demand for $10,000 and the expressed promise of her husband's release. This time she listened to reason, and our advice dispatched to her lawyer. Later that day, when the husband returned from the golf course (his cell phone was in his locker at the clubhouse during golf), she was quite relieved to see him. Although he was upset when he learned of his wife's experience, the husband was more inflamed when he learned of her compliance with the fraudsters' request in the first place. Lesson learned … but a little too late.

A sound defense against tax and other forms of identity theft is to maintain a good offense. A few basic strategies to protect yourself from all forms of identity theft include, but are not limited to:

• Protect your personal information. Store your Social Security number in a safe place, not your wallet.
• Shred documents and mail that contain personal information but are no longer needed, such as credit card offers and statements, prior to discarding them.
• Check on all financial accounts regularly, as well as timely report and investigate any suspicious or unfamiliar activity.
• Change your passwords to online banking and credit card accounts regularly. If you must write them down, store them, as well as all financial documents, in a safe place; do not share your passwords with anyone.
• Do not click on links in e-mails where you are unfamiliar with the sender or which appear suspicious, even if from a friend or relative.

For Further Information

If you would like more information about this topic or your own unique situation, please contact Steven M. Packer, CPA, or any of the practitioners in the Tax Accounting Group. For information about other pertinent tax topics, please visit our publications page located here.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.