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Understanding Why the IRS Issues ‘PIN Numbers’ to Tax-Fraud Victims

It's Tax Season 2013 but are you taking all necessary steps to avoid becoming a victim of identity theft?

After all, last year the Internal Revenue Service (IRS) called identity theft its no. 1 problem in the annual Dirty Dozen list of tax-time crimes. Taxpayers must avoid falling into a trap with the "dirty dozen" as scam artists will tempt people in-person, online, and by email with misleading promises about lost refunds and free money. Don’t be fooled by these scams.

The IRS says identity-theft cases are the most complex cases because identity thieves look for ways to use a legitimate taxpayer’s identity and personal information to file a tax return and claim a fraudulent refund. (In fact, this IRS-produced podcast has interesting information on what to do if you think you've been victimized by a tax fraudster and/or identity thief.)

But did you know that before tax fraud spread to the wider public, electronic tax fraud had its roots in prisons? The IRS stopped 135,000 fraudulent returns from being filed from prisons in 2012. Senator Bill Nelson of Florida, who testified at a Senate hearing about blocking fake returns, noted the following:

“There have been hundreds of thousands of cases where unsuspecting law-abiding taxpayers, their lives are being turned upside down by identity theft and tax refund fraud. To the poor taxpayer, it’s unfair and unjust.”

How Does the PIN for Identity Theft Victims Work?

Obviously, the IRS has been tackling the issue of identity theft very aggressively. Two years ago it started mailing a notice (called CP01A) to taxpayers who have been victims of tax-related identity theft and fraud. The notice is intended to help these victims get their refunds sooner.

Each CP01A notice gives the taxpayer a new number, called an Identity Protection PIN (IP PIN) and explains the following:

"Our records show that you were previously a victim of identity theft or you notified IRS because you experienced an incident that could potentially expose you to identity theft (lost your wallet, etc). We’ve placed an identity theft indicator on your account to protect you when you file your federal tax return. This means that we’ll review any tax return filed with your Taxpayer Identification Number to make sure it isn’t being filed fraudulently.

To verify that a return belongs to you, we’ve assigned you a unique Identity Theft Personal Identification Number (IP PIN) for 2012. You’ll need to use this PIN when filing your tax return."

Additionally, anyone who receives the notice must follow these instructions:

  • When you file your federal tax return, enter the IP PIN in the correct place. If filing electronically, your tax software or practitioner will tell you when and where to enter it. If filing a paper return, enter your IP PIN in the gray box marked “Identity Protection PIN” to the right of “Spouse’s signature and occupation.”
  • Only enter the IP PIN for the first Social Security number you enter on the tax return, if married filing jointly and both taxpayers received an IP PIN.
  • You will have to use a paper form if you apply for an extension of time to file your return or need an installment agreement.

Security Tips to Remember

  • Your IP PIN is only good for one year and a new one will be issued as long as the Identity Theft Indicator is on your tax account.
  • Keep your number private and don’t give it to anyone other than a tax professional filing your return.
  • The IP PIN is only used to file your tax return. It has no other purpose.
  • If you e-file, it is different than the five-digit PIN you create when digitally signing that return.
  • The PIN is not for your state return, if applicable. It is only for your federal income tax return.
  • The PIN is issued in January and is good for the current processing year only.
  • If the PIN is misplaced, past victims will not be able to obtain a new one from the IRS for the current processing year.  They will need to file their return without the IP PIN.  In this case, the processing of the federal return will be delayed while the IRS validates the return as the taxpayer's return.
  • Past identity-theft victims will not be able to e-file their returns without the PIN. It may take more time for the IRS to process a paper return because the IRS will have to validate the taxpayer's identity to protect his or her information. This could delay a refund.

One final question we have with the PIN -- wouldn't it make sense for every taxpayer to have a PIN for security purposes? What do you think? Leave a comment below or share your views on our Facebook page!


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Elaine Rigoli

Elaine Rigoli is PRIVATE WiFi's manager of digital content strategy.

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