New Law Helps IRS Crack Down on Fraud and Tax-Related Identity Theft


By Kim Shields

As of January 2015, the IRS will be limiting the number of income tax refunds that are electronically deposited into a taxpayer's single financial account or pre-paid debit card to three.  Under the new rules, taxpayers whose funds exceed the direct- deposit limit will be notified by the IRS that their current and subsequent refunds will be in the form of a paper check.  Despite the fact that electronic direct deposits are the fastest and safest way for taxpayers to receive refunds, the IRS's new limit on the amount of direct deposits a taxpayer can receive is designed to prevent criminals from easily obtaining multiple refunds.  In addition to protecting taxpayers from identity theft, the new rules are also designed to protect taxpayers from unethical tax return preparers who obtain payment for their tax preparation services by depositing part or all of their client's refunds into their own bank accounts.  Direct deposits will not only be limited to three times, but must be made only to accounts bearing the taxpayer's name.  The limit applies to all financial accounts, such as bank savings and checking accounts, as well as prepaid, reloadable cards or debit cards.

Despite all of IRS's efforts to identify and eliminate fraud and tax-related identity theft, taxpayers may still find themselves victims.  Taxpayers and the IRS can work together to fight this crime.  To prevent identity theft related to income tax filings or to lessen its effects, immediately take action and follow the recommended procedures:

  1. If you receive a letter from the IRS and you suspect that your identity has been stolen, don't respond using any phone numbers provided on the suspicious letter.  Instead, contact the IRS through legitimate channels, such as by going to the IRS website to confirm its telephone number or use the toll-free number provided in step 4 below.  Immediately contact the IRS to make sure the letter is legitimate.
  2. If you are truly the victim of tax-related identity theft and are due a tax refund, the refund will likely be delayed until an investigation has been completed, which could take from six months to a year.
  3. You will need to fill out the IRS Identify Theft Affidavit, Form 14039.  On this form, you should provide a brief explanation of why you believe you are a victim of identity theft, your name, address, date of last tax return filed, contact information and photocopies of at least one of the recommended documents  which are listed on the form that will be used to verify your identity.
  4. Your case will be assigned to the Identity Protection Specialized Unit, which you can contact toll-free at 1-800-908-4490, extension 245.
  5. Report the crime to your local police department.
  6. Contact the fraud departments of the three major credit bureaus:
  7. Report incidents of identity theft to the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338 or TTY 866-653-4261.
  8. Close any accounts that have been tampered with or opened fraudulently.
  9. Contact your accountant for assistance in resolving the matter.

© 2014 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2019 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.