Dealing with dependent ID theft and the IRS

[FEDUKE404]

For tax year 2004, e-filing "bounced" for a long-term client. Someone else had claimed a dependent. Dependent was removed from the tax return, we refiled electronically without problem, and then an amended paper return was filed with the correct dependents. Awkward, but it worked.

Client visited IRS, and discussed matters with them. NOTE: Dependent is pre-teen child of parents who are happily married and have never been married before. They have claimed this child since birth.

For tax year 2005, e-filing once again bounced. We said to heck with it and just filed a paper return instead. Client again visited IRS and Soc Sec folks, and firmly "expressed his opinion" to them.

For tax year 2006, e-filing once again was rejected. (Another paper return filed.) Client is livid.

The IRS is firm in their stance that they will not divulge any details, so we don't know if a next door neighbor got the child's ID or someone on the other side of the country is using it. (My personal guess is a school or medical facility theft of the relevant information.) From prior experience, I had already explained to the client that the IRS would take such a position.

In any case, is there no way the IRS could "key" their computers to reject a return if someone other than the parents claim the child? One would think the IRS might have had some discussions with the offending person(s). Oh yes, the client has checked SS records for the child, and there is so far no wage income on file, meaning the situation is most likely not a person using the SSN for employment but rather for earned income credit, etc.

The client is feeling frustrated, and "filing early" is not a valid option as there is investment income involved and the numerous Forms 1099 (frequently corrected) keep rolling in until mid-March.

Thanks for any input or suggestions, especially if you have dealt with this situation before.

FE

[dsi]

Contact your congressman. Both parties seem to be willing to help us for the time being, that is until elections are over in 2008.

[George Boutwell]

Isn't E-Filing Wonderful?

Electronic filing is fast, fair, friendly and convenient for all parties involved.

Just keep repeating it to yourself.

Click your heels three times. That might help.

[sea-tax]

FEDUKE404, As strange as this sounds I would advise the client to run a credit report check on the child. I have seen cases where by not only has someone stole the soc # to file returns (most likely and illegal alien) but in many cases they use this number to obtain credit, like a mortgage.
If they have, it should pop up on the child's credit report and maybe you can go to the specific lender and notify them that the information they have been provided is incorrect. Furthermore this may cause the lender to start some criminal proceedings because making false statements on an application for credit I think is a felony. Good luck.

[DaveO]

At the TPA Town Hall meeting

A woman told her story of having a child late in the year who survived only a couple of months. When she filed her return claiming her deceased child it bounced. Only someone in the hospital would have had access to the SSN. She was counting on the refund to pay funeral expenses. I can't imangine the mind of the theif.

[Joe Btfsplk]

Electronic filing is fast, fair, friendly and convenient for all parties involved.

Just keep repeating it to yourself.

Click your heels three times. That might help.

Efiling allows the IRS to check the SSN immediately. If the return had not been efiled, the IRS would have allowed the exemption, then tried to get the money back later. They might have even tried to get it from the criminal who "borrowed" the clild as an exemption.

[Kong]

Seen this sort

of activity, here is southern Arizona. This is how I handle situation, E-file return, return rejected dependent used on previous return. Prepare paper return, have client mail return.
Advise client I do not work for I.R.S. therefore I can not answer any questions they might have as to whom might be using dependent. Give Him, Her, or couple 1-800-829-1040 phone number. Advise client to write down all questions that they want answered on a piece of paper for easy reference. Client is in my office less then 10 minutes. I always give client benefit of the doubt but from past experience grandparent, older sibling, or other relative used dependent prior to current incident (with thier acknowment). Let the proper authorities deal with this problem. Short, simple and to the point.

[George Boutwell]

Efiling allows the IRS to check the SSN immediately.

And what good does that do? (Other than assisting the RAL bankers.)

[erchess]

Efiling

Electronic filing is fast, fair, friendly and convenient for all parties involved.

Just keep repeating it to yourself.

Click your heels three times. That might help.

I view this case as a clear example of what's good about e-filing. They found out very quickly that there was a problem and they knew their options and the consequences of each.

[erchess]

of activity, here is southern Arizona. This is how I handle situation, E-file return, return rejected dependent used on previous return. Prepare paper return, have client mail return.
Advise client I do not work for I.R.S. therefore I can not answer any questions they might have as to whom might be using dependent. Give Him, Her, or couple 1-800-829-1040 phone number. Advise client to write down all questions that they want answered on a piece of paper for easy reference. Client is in my office less then 10 minutes. I always give client benefit of the doubt but from past experience grandparent, older sibling, or other relative used dependent prior to current incident (with thier acknowment). Let the proper authorities deal with this problem. Short, simple and to the point.

I don't understand your failure to help your client resolve the problem with the IRS. I always explain that if they pursue efforts to claim the child either they or the other party will most likely end up in trouble with the IRS and that therefore if they have ever let a friend or relative carry the child it would be best to speak privately to that individual. If my client is going to call, write back to, or visit the IRS I am willing (for a fee) to be part of the process just as I would be with any other issue that came up between a client and a taxing agency.

[FEDUKE404]

Follow-up to my original post

It almost appears we are getting somewhat off-topic here.

The situation with this client is not the usual "who's gonna claim the child" scenario that frequently gets encountered during the EITC rush, with divorced/separated parents, or whatever.

The client is fully able legally to claim their own child. The other person(s) involved has stolen the child's tax information.

I will fight to the end for my client (at no cost to them!!) on this issue, but the IRS will (as most of you already know) provide zero information as to what occurred with this identity theft issue. In all three years, my client has "won" and received the exemption for their (married filing jointly) child. It does create some cash flow problems for the couple when the $1k child tax credit and lower taxes for the "extra" deduction do not show up until October or November, rather than in March or April.

Some folks are maligning e-filing, which I think is a wonderful option. In fact, one of my major complaints, other than the fact that the client is getting abused through no fault of his own, is that some low-level IRS data entry operator now has to enter everything from the paper return. Typing in copious amounts of date from Schedule D and other investment documents creates a lot of potential problems that would never exist IF e-filing had worked in the first place.

It just seems there would be some consideration by the IRS for a taxpayer who has done nothing wrong and preferably more problems for the crook who continues to use the child's tax information.

Or.....this could just be the way things are........

FE

[Kong]

Erchess

I don't understand your failure to help your client resolve the problem with the IRS. I always explain that if they pursue efforts to claim the child either they or the other party will most likely end up in trouble with the IRS and that therefore if they have ever let a friend or relative carry the child it would be best to speak privately to that individual. If my client is going to call, write back to, or visit the IRS I am willing (for a fee) to be part of the process just as I would be with any other issue that came up between a client and a taxing agency.

Sequence of events, Client sumitts paper return. Client recieves refund. Problem solved at moment refund was released. At a later date during year, client receives letter from IRS that two different taxpayers used same dependent. If client is entitled to dependent do nothing. I practitioner recieve call from client, asking what to do? I instruct do nothing as letter states because we can prove that he/her/them were entitled to dependent. Where's I am not helping client. Next year we go though same process, until IRS calls in both parties and guess who does not show up? You are right the other person. The IRS gets involved sooner or later.

[Snaggletooth]

Yes, Missing the Point

FEDUKE404 you are so correct.

Statements like "everything worked out with a paper return" "e-filing detected a problem", etc. are in fact missing the point.

Where is IRS enforcement? Why in three years have they not been able to stop an improper person from taking a deduction? This is SO EASY to fix - yet they would rather let their computers print out CP-2000 notices, half of which are wrong. If I worked in a field office and got a directive it would take me every bit of 20 minutes to fix this, maybe less.

A friend of mine works at one of those fast-refund storefront tax firms. Felt the abuse was so bad she contacted her congressman. Wouldn't answer, so she called him when he came back to town. He said the perception in congress was that earned income credit was one of the best things going for the economy, but if she felt there was fraud, SHE should document it thoroughly and take it to the IRS.

God forbid they should get out of their cushy offices and stop even 1% of these cases such as was told by FEDUKE. Even sending a letter to the last known address should strike terror in the heart of the offender.

[George Boutwell]

Error, not terror

Even sending a letter to the last known address should strike terror in the heart of the offender.

Terror? As in the "terrorists" who are killing the teen-agers we send with little training to police them in an unfamiliar land the enemy knows like the back of their hand?

Pardon me for drawing the analogy, but your assumption that someone is smart enough to hijack an SSN but not smart enough to rotate its use on different returns each year, strikes me as the same kind of misguided superiority complex that solves no problems elsewhere. Just as there have always been too many generals fighting the last war, there are too many IRS agents auditing the last tax return.

[newbie]

Sequence of events, Client sumitts paper return. Client recieves refund. Problem solved at moment refund was released. At a later date during year, client receives letter from IRS that two different taxpayers used same dependent. If client is entitled to dependent do nothing. I practitioner recieve call from client, asking what to do? I instruct do nothing as letter states because we can prove that he/her/them were entitled to dependent. Where's I am not helping client. Next year we go though same process, until IRS calls in both parties and guess who does not show up? You are right the other person. The IRS gets involved sooner or later.

I was told that the IRS does not follow up on these letters. If all parties that receive the letter do nothing - nothing is done!

Meant no disrespect to Kong - just was looking at the sequence of events and mentioned that supposedly the IRS does not follow up on these letters. Mr. Hockenbery was the instructer, he teaches at Back to Basics seminars and his wife is high up with NATP orgaization so I consider it a reliable source.