Tax Clinic Identity Theft Procedures

One of the defenses to the assertion of a federal income tax deficiency is that the tax is being imposed on income that the taxpayer did not earn.  This can be the result of someone else using the taxpayer’s identification number.  
 
While it is common for identity thieves take credit cards, they will also fraudulently file tax returns, oftentimes seeking a refund that is due an innocent victim. In other circumstances, taxpayers will have their social security numbers stolen to enable someone else to obtain employment.  In this case, the employer reports the client’s social security number on the W-2 sent to the identity thief and to the IRS. 

Handling an Identity Theft Case

When this issue arises, the student should follow the opening processing procedures to first decide whether the prospective client meets the Clinic guidelines.  Once the Clinic accepts the client, there are two courses of action available depending on at what point the client contacts the clinic  - (1) If  the taxpayer contacts the clinic prior to an assessment (pre-issuance of the statutory letter 90 day letter) or (2) upon issuance of the 90 day letter. 

If the Clinic is contacted pre-issuance of the statutory letter (90-day letter):

1. The student will prepare a memorandum and notebook.  The notebook will be directed to Examination Division.

If the case is post assessment (after the 90-day letter) the case will be referred to The Taxpayer Advocate for Georgia.  To do this, the student attorney will prepare a memorandum accompanying Form 911 and a complete notebook. 

In either case, the notebook requires the following information:

1. The client should have submitted an online Identity Theft Complaint form to the FTC, printed it and furnished a copy to us.
2. The client should complete and sign the IRS Form 14039 (Identity Theft Affidavit)
3. Filling out a form 911 (for the Taxpayer Advocate notebook only)
4. A memorandum with the statement of the facts.  (See sample memo below)
5. An FTC identity theft affidavit. 
6. Proof of an identity theft police report.
7. A valid form of identification such as: drivers license, voter registration card, a work permit, green card, work place ID card.
8. A cover letter to the police stipulating its importance. See FTC example.

Identity Theft Report

First, the taxpayer must prepare and file an identity theft report.  An identity theft report begins with filing a complaint with the FTC.  The complaint with the FTC must provide specific details.  

Second, the student attorney and the taxpayer should file an identity theft report with the local police.  An identity theft report is a police report containing more detailed information pertinent to identity theft.  This report contains sufficient information to put credit card companies and other businesses on alert.

It is important to give as much information as possible to the police.  The more information the report contains, the more the police have to find the individual and possibly prevent that person from stealing other’s identities. Include possible dates, and possible suspects.  The student attorney should cover these details during the initial interview.

While the police will always generate a report, they may not be aware that the taxpayer needs the report to gain certain protections.  As such, include a Law Enforcement Cover Letter to explain to the police department the importance of the police report.  

Have the client always file the report in person if possible.  The client should bring a copy of the complaint and the cover letter when filing the police report.  The cover letter will help ensure that the police understand the importance of obtaining a report.  Sometimes, though, the police require reports filed over the phone or via the internet.  If a report is filed online or over the phone, the taxpayer should complete the “Automated Report Information” block of the ID theft complaint.  The police should give the taxpayer a filing confirmation number.  Attach a copy of the filing confirmation number to the FTC complaint.

Third, the taxpayer must get a copy of the identity theft report.  In some instances, the taxpayer can simply ask the officer for a copy of the ID theft report.  In those instances, the police officer should be able to sign a copy of the FTC ID theft complaint and write the police report number in the “Law Enforcement Report” section.  In other instances, the taxpayer will have to follow local procedures for obtaining a report.

ALERT FOR 2010 AND FUTURE FILING SEASON: Once the Identity Theft matter has been brought to the attention of the IRS for 2010, the IRS may issue a PIN to use in filing the 2010 Tax Return. The student should alert client to use only that PIN if he or she receives one.  See notice 2010 TNT 245-16

Contents of Memorandum and Notebook

The identity theft police report is important and this is the place where you include the information about the harm suffered by the client. Some examples of harm include:

• bank accounts that have been tampered with;
• fraudulent signatures on documents – i.e. checks; or
• copies of 1099’s or W-2s that the client indicates are not his; 

The memorandum that accompanies the Form 911 and notebook should contain all or as much as possible of the above information.  Each of the items above may be an exhibit and referred to in the memorandum. To the extent that the client did not include all the above in the police report, the memorandum and notebook should include the above or as many as possible.  The more of the above items that are included the more persuasive the case; obviously the less documentation, the less persuasive.  The police report, FTC report and the other above listed items are included as exhibits to the 911 and memorandum.

The memorandum, similar to other memorandums the clinic prepares, will include

1. An introduction;
   
   
2. Tax History section (describe in detail the taxpayer’s prior filing history up to the time that his identity was stolen. The student should point out the implications of this added income if correct and that is not traceable to the client’s accounts);
   
   
3. Personal Historical Background (include the client’s personal background, educational history, work history with particular attention to his work history at the legitimate employer);
   
   
4. Factual Analysis - demonstrate the facts and documents indicating that this income is not that of the client. This discussion and factual analysis may include:
   • A showing that the client could not have worked at the particular other source of income because it was located in another state or across town and they couldn’t be in two places at once; or, affidavits from the actual employer that client had a 40 or more hour a week job with a copy of vacation records showing he did not take time off on the dates and times when he was supposed to have worked at the other job;
   • That he/she does not look like the person that used his/her ID, and/or
   • That none of the income has shown up in his/her bank account(s). The student can demonstrate this by including bank statements for the period of the identity theft.  It may also be necessary to include 12 months of statements);
5. Law and Analysis; and
6. Conclusion.   

Prior to sending the Notebook, contact the local Taxpayer Advocate and ensure that the address is correct. Ensure that a complete exact copy is retained as a file copy.

After review of the memorandum by the Clinic director is complete, the completed (ready for mailing) copy should be submitted to the Associate Clinic Director along with the file copy. The Associate Clinic Director will initial the file copy and by that acknowledges that the original is ready to be mailed.  

While not part of the area of work of the clinic, the client should be encouraged to provide a copy of the letter from the Taxpayer Advocate’s office to the Social Security Administration and Department of Labor once the TPA agrees that the client has been a victim of identity theft.

The student should follow up at a minimum within 10 days of mailing to ensure that the Form 911 and accompanying notebook was received and then each 30-45 days there after.  For follow up you can use the IRS Identity Protection Specialized Unit Hotline - 1-800-908-4490.  Use this number only for previously submitted matters.

Resources

Tax Notes Today - April 10, 2008

Identity Theft Sample Memo

Identity Theft Affidavit - IRS Form 14039

Pub. 4535 (EN/SP) (Rev. 10-2008) - Identity Theft Prevention and Victim Assistance

I.R.M. 21.9.2.1 (10-1-2010) - Accounts Management Identity Theft

I.R.M.  5.1.12 - Collection Procedures - Cases Requiring Special Handling