IRS Changes Policy – Will Provide Bogus Tax Returns to Victims of Identity Theft

Last month I blogged about the pervasive problem of identity theft and the filing of false tax returns using the stolen data.  The post explained that once a refund has improperly been issued by the IRS to the identity thief, nightmarish problems begin for the victimized taxpayer.  Basically, the scenario plays out like this: When the IRS realizes that the refund  issued was not proper, the taxpayer is usually presented with an IRS audit notice. The innocent taxpayer will try to defend himself and in the ordinary course, will request the IRS provide the return that was filed claiming the erroneously issued refund.  When the taxpayer explains that he was the victim of identity theft and did not actually file the tax return, the IRS has, up until now, flatly refused to provide the taxpayer with a copy of the return. It based its decision on privacy concerns.  Specifically, the IRS has taken the position that the disclosure laws contained in Internal Revenue Code Section 6103 prohibit the release of the information to the taxpayer since the taxpayer, himself, did not file the return.

The IRS’ persistent refusal to provide such copies prevents victims from knowing what information has been stolen and from understanding the extent of the details the scammer has obtained.  This lack of information can thwart the victims’ attempt to take appropriate actions to limit the damage done. Sadly, this is exactly what happened in a recent case decided February 19 2015. The court in the case of Kathleen Stegman ruled that the IRS could keep from the taxpayer the return filed by someone who had misappropriated and used her identifying information. 

Hack of “Get Transcript” Application and Senator Ayotte – The Perfect Storm

The hacking of the IRS “Get Transcript” application last month left over 100,000 taxpayers at risk of identity theft; it also left the much-criticized IRS reeling in its wake.  The fallout has probably helped cause the agency to re-think its policy of refusing to provide copies of  the bogus tax returns to the identity theft victims. Just last week, IRS Commissioner Koskinen replied to the urging of US Senator Kelly Ayotte (R-NH) to change its policy and better assist victims of identity theft by providing them with copies of the fraudulently filed tax returns. Senator Ayotte’s actions were designed to assist her constituents who were victims of tax-related identity theft after they had been stonewalled by the IRS in attempts to get the fraudulently filed returns.

In responding to Senator Ayotte on Thursday, Commissioner Koskinen wrote, “As a result of your letter, we have decided to change our policy regarding disclosure of fraudulent identity theft returns to victims whose name and SSN the fraudulent return was filed under…We will put together a procedure that will enable victims to receive, upon request, redacted copies of fraudulent returns filed in their name and SSN.”

Three cheers for Senator Ayotte and let’s hope the IRS will get the procedure put into place soon.


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