Dealing with dependent ID theft and the IRS

[Kong]

Newbee

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!

You are repeating Hearsay. Believe me IRS sooner or later does get involved (Fact). Now lets assume that the IRS never gets involved, what would you do? Remember that you cannot answer letter sent to client because IRS wont do anything anyway (Your Quote). Unfortunately we as practioners are in a no win situation. We as practitioners can not alone save the world. Theres only so much one can do. If whomever believes I do not go the extra mile, please sumitt me your E-mail address and I will pass it on to these unfortunate Taxpayers.

[sea-tax]

FEDUKE404
I think I gave you a pretty staight answer to help solve your clients problem. Infact I have used this process before and it has work well. You can now go online and help the client obtain a credit report. I will bet dollars to a donut that who ever is using that soc # for Income tax purposes is also using it for some type of credit. Trust me when I tell you that the banks will do something . Good Luck

[newbie]

You are repeating Hearsay. Believe me IRS sooner or later does get involved (Fact). Now lets assume that the IRS never gets involved, what would you do? Remember that you cannot answer letter sent to client because IRS wont do anything anyway (Your Quote). Unfortunately we as practioners are in a no win situation. We as practitioners can not alone save the world. Theres only so much one can do. If whomever believes I do not go the extra mile, please sumitt me your E-mail address and I will pass it on to these unfortunate Taxpayers.

Settle down, I did not mean to diss you.

An instructor at a seminar had commented on how these letters are sent to try to fear the incorrect party into comming forward and filing the 1040X but if neither party responds no further action is taken. Your correct could be hearsay.

If my client is in the wrong we do the 1040X, if my client is in the right I have written a letter to explain here is why taxpayer took the dependency rather than do nothing.

[George Boutwell]

IRS Looks Askance

You are repeating Hearsay. Believe me IRS sooner or later does get involved (Fact).

People, people, people.

It's time for a reality check.

The United States government does not have the resources to settle every dispute between divorced parents or between parents and kids who want to claim themselves, when the amount of tax involved is often less than $500.

If they wanted to pursue these cases, they would send a CP2000-like notice to both parties, proposing a tax adjustment, and waiting for either side to present reasonable evidence to justify the claim.

Until there is a surge of 30,000 Service Center employees, that is not going to happen.

Take a look at what they don't have the resources to do, in another area.

From a Treasury Inspector General for Tax Administration report issued last year:

>>>Single Taxpayers Continued to Claim a Non-permissible “Dual Benefit” by Taking Both the Tuition and Fees Deduction and the Education Credit

The Economic Growth and Tax Relief Reconciliation Act of 2001[24] created a new “above-the line” deduction for tuition and fees.[25] For TY 2005, taxpayers were allowed to take a deduction of up to $4,000 for qualified tuition and fees paid for the taxpayer, his or her spouse, or his or her dependents. Taxpayers who claim an Education Credit are required to complete Education Credits (Hope and Lifetime Learning Credits) (Form 8863) and identify the student, by name and Social Security Number, for whom the Education Credit is being claimed. Taxpayers who claim the tuition and fees deduction are not required to provide additional information other than what is already on the return to identify the student for whom the deduction is being claimed. However, taxpayers may not receive a dual benefit by taking both the tuition and fees deduction and the Education Credit for the same student in the same year. If the Education Credit is elected, the tuition and fees deduction is not allowed.

We have been reporting that single taxpayers with no dependents are claiming both the tuition and fees deduction and the Education Credit since the deduction was created.

During this filing season, we identified 15,250 single taxpayers claiming no dependents that claimed both the Education Credit and the tuition and fees deduction. We focused on single taxpayers claiming no dependents because it is clear that both the tuition and fees deduction and the Education Credit were claimed for the same individual, which is not allowable. Our audit analysis showed these taxpayers claimed Education Credits of over $11 million and tuition and fees deductions of nearly $34 million. Assuming all 15,250 taxpayers received an erroneous tax benefit from only the tuition and fees deduction, the estimated loss of revenue is nearly $5.1 million.[26]

This condition was reported in the 2003, 2004, and 2005 Filing Seasons

This is the fourth year in which we have identified and reported this issue. When this issue was identified during the 2003 Filing Season, [27] the IRS included a cautionary statement on the Form 8863 specifically to alert taxpayers not to claim both the tuition and fees deduction and the Education Credit for the same student in the same year.

During the 2004 Filing Season, we recommended the IRS work on changing or developing processes to identify and prevent erroneous deductions during initial tax return processing, such as math error notices or unallowable items to disallow the dual benefits claimed by single taxpayers with no dependents.[28] The IRS agreed to establish a cross-functional task group to conduct a study that would focus on the possibility of addressing errors during the initial processing of returns.

In the 2005 Filing Season, we recommended the IRS revise Form 8863 to combine and include applicable information for the tuition and fees deduction and the Education Credit to ensure compliance and promote simplicity and fairness, as noted by the Joint Committee on Taxation. The IRS responded that, if legislation was enacted to extend the tuition and fees deduction beyond the TY 2005 expiration date, it would revise Form 8863 to include the tuition and fees deduction on the Form.

While still significant, the number of single taxpayers with no dependents claiming both the Education Credit and the tuition and fees deduction has decreased 18.8 percent from the previous year (15,250 in the 2006 Filing Season compared to 18,776 in the 2005 Filing Season).<<<

[FEDUKE404]

Checking child credit report

I think I gave you a pretty staight answer to help solve your clients problem. Infact I have used this process before and it has work well. You can now go online and help the client obtain a credit report. I will bet dollars to a donut that who ever is using that soc # for Income tax purposes is also using it for some type of credit. Trust me when I tell you that the banks will do something . Good Luck

Thanks, sea-tax. Client has bared his soul to the IRS (they're not sympathetic) and checked SS earnings records for the child (so far, none.)

There is a slight glitch in the road re credit check for the child, but client has stated he may consider jumping through the necessary hoops to obtain that additional information.

Below is from Q&A from www.annualcreditreport.com :

How do I request a credit report by mail for a child under 13 years of age?
The credit reporting agencies do not knowingly maintain credit files on minor children. If you suspect that your minor child's information has been used fraudulently, you should contact the credit reporting agencies directly and report the illegal use of your child's information to law enforcement. Please supply each credit reporting agency with your child's complete name, address, date of birth and a copy of the minor child's birth certificate and social security card. Additionally, please provide a copy of your driver's license or other government-issued proof of your identity, which includes your current address, and a current utility bill containing your current address so the credit reporting agencies may promptly respond to your request.

FE

[bertrans]

identity theft

While the issue of identity theft is a horrible one, when it comes to someone else claiming a dependent, the IRS is bound by law (Code Section 6103) NOT to reveal the identity of the other claimant. When a dependent is claimed by someone who does not have custody of that dependent, the odds of the 'other' claimant rise significantly. Best we've got at the moment.

PS: On the original issue, please remember that e-filing makes things easier for...the IRS.

[bertrans]

identity theft

George,
Once again, you have hit the proverbial nail on the head. Resources, resources. As it is, we're mostly spinning our wheels.

[lbbwest]

Why not try this....

Have you seen a copy of the child's social security card? Look at it. Make sure that everything is correct. I had a case a few year's back the first year I efiled, rejected dependant. Child's name was (e.g.) Samantha Smith, her SOCIAL SECURITY CARD said Samantha Smythe. I would verify that information before I spent a lot of other time and money. When I switched over the efiling I found in one case the parents had been using the incorrect social security number at banks and other pertinent areas. If taxpayer A has always incorrectly used a Social Security number (your client's child) he wouldn't know any difference, again everybody needs to look at the child's card.

[FEDUKE404]

The dependent info is 100% correct

Again, it is not an issue of "incorrect" identity but rather a stolen identity. The parents have for three years running eventually "won" the battle for their dependent after the paper return has been filed. It would seem reasonable that the parents could somehow in the future not have to first "lose" via e-filing and then prevail once the IRS has the facts. While I understand the IRS cannot divulge the guilty party, it somehow seems to me they could at least discourage and/or not permit the recurrence of such future activity. In the meantime, the other person continues to get a free ride.

From e-file report: Error Code: 507
Error Description: The SECOND dependent on this return has already been claimed as a dependent on another return. According to the IRS records, the SECOND dependent on this return was previously claimed as a dependent on another return.

As for e-filing, I definitely think it is a good idea for all parties......including of course the IRS.

FE