IRS Announces Procedures for Identity Theft Victims to Request Copies of Fraudulently Filed Tax Returns

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Today we welcome back guest blogger Rachael E. Rubenstein who recently joined Strasburger Attorneys at Law in San Antonio, Texas after serving as the director of the low income taxpayer clinic at St. Mary’s law school. Rachael was a principal author of the Identity Theft chapter in the 6th Edition of Effectively Representing Your Client Before the IRS.  She writes today about the recent change in IRS policy that will allow victims of identity theft to see a redacted version of the return filed by the thief using the victim’s tax identifying information.  This is a much needed change that has been a long time coming.  Keith

On November 5, 2015, the Service announced instructions and information for taxpayers to request copies of fraudulent returns filed by identity thieves using their personal information.

For several years, victims and advocates (including TAS representatives, LITC clinicians, and private practitioners) have pushed for access to these returns. However, until last week, the Service did not permit its employees to provide victims of identity theft copies of tax returns filed under their SSNs due to concerns about section 6103 disclosure violations, despite clear guidance on the topic in 2012 from Chief Counsel. In May of this year, Senator Ayotte pressed Commissioner Koskinen on this issue. He responded with a letter stating that the Service decided to change its policy regarding disclosure of fraudulent returns and would develop procedures to enable victims to request and receive copies of these returns. In August, during a congressional hearing on Tax Related Identity Theft and Fraudulent Tax Returns, representatives from TAS and TIGTA specifically testified about this policy change and their desire for the Service to move forward with its plans to grant access to fraudulent returns. Although this news was long-awaited, the Service delivered on the Commissioner’s pledge.

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The announcement states that copies of the current tax year and the previous six years are available. The instructions are fairly specific in terms of what a taxpayer, or authorized representative, must include along with the request. A chart covers what return information will be visible on the copy versus redacted. For example, the names of the taxpayer, spouse, and any dependents on the return will be redacted except for the first four letters of the last name. SSNs, ITINs, and EINs will also be redacted except for the last four digits. Additionally, phone numbers and bank numbers will be redacted expect for the last four digits. The entire address will be redacted minus the street name. The names and addresses of “other persons” or entities listed on the return will be completely redacted along with the numbers associated with the tax return preparer or third party designee.

The redactions appear appropriate in light of the disclosure statute and Chief Counsel guidance, although, arguably, the restrictions may go further than required under section 6103 with respect to “other persons,” namely return preparers. The instructions indicate that a request will be returned if the address listed does not match the requestor’s IRS address of record. There are certainly instances when a victim’s IRS address of record is changed due to no fault of his own. For example, the address of record may not be correct when the Service processes an identity theft return and does not receive a paper filed return from the true owner of the SSN for the same tax year. Taxpayers whose requests are rejected due to an address mismatch will be instructed to change their address of record by filing a Form 8822, Change of Address. The request may be resubmitted after the Service processes the address change.

During the initial phase of this new program, the Service will probably take longer than the reported 90 day average to effectively process and respond to requests for copies of fraudulent returns, as the volume is unpredictable and the cases complex. Undoubtedly many requestors will experience processing holds due to open identity theft issues, and a significant number of requests will likely be returned as a result of address mismatches or failure to follow the instructions. Nonetheless, in an era of perceived dysfunction in tax administration, it’s important to acknowledge when a positive policy change occurs through multifaceted advocacy efforts.

Comments

  1. Bob Kamman says:

    Raise your hand if you think IRS will always be able to sort out the impostor from the victim. “Taxpayers whose requests are rejected due to an address mismatch will be instructed to change their address of record by filing a Form 8822, Change of Address.” If Abel is the victim and Baker is the perp, what if Charlie enters the picture with an 8822?

    I know I am missing something here, but could someone explain why this is important? It seems like a lot of work by IRS (for no fee?) to satisfy the victim’s curiosity. How is the bogus return going to be used? Given limited resources, shouldn’t IRS be using them for prevention and not redaction?

    I am reminded of the last time a client was audited. The revenue agent asked for our copy of the return, because what he was provided, was just an extract of data from it.

    Who are “other persons?” Does that mean names and EIN’s of payers shown on W-2s and 1099s? If the identity-theft return was filed electronically, will the software provider be identified? I can see some subpoenas or claims for liability, there.

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