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Tax-Related Identity Theft: What It Is & How to Protect Yourself

Shawn Von Talge


Tax-related Identity TheftA growing epidemic in the real estate industry that is affecting thousands of individuals and families is tax-related identity theft.

What is tax-related identity theft? Generally speaking, this occurs when someone steals your social security number and uses it to file a false tax return for the purpose of obtaining a fraudulent refund. In many cases the victim is unaware that this has taken place until he/she attempts to file a tax return, only to find out that one has already been filed.

Among other things, the unfortunate consequences of tax-related identity theft include the effect it can have on one’s ability to obtain a home loan. This is because in most cases lenders are required to verify the borrower’s income with the IRS using an executed document called the “Form 4506-T” (otherwise known as the “Request for Transcript of Tax Return”). This document is signed by the borrower during the initial stages of the loan process and gives the lender formal authorization to verify with the IRS that the tax returns the IRS has on file match those that the borrower has provided to the lender.

Often times when tax-related identity theft has occurred it can substantially delay or completely impede the lender from obtaining the borrower’s tax transcripts. This in turn can cause the borrower’s purchase contract to fall through (as it may result in the closing date being impossible to meet) or cause a refinance to no longer be viable (as interest rates may no longer be favorable by the time the tax transcripts are finally obtained).

Here are a few common signs that you’ve been a victim of tax-related identity theft:
▸ More than one tax return has been filed using your SSN
▸ You owe additional taxes or have collection actions taken against you for a return you    never filed
▸ The IRS indicates you received wages from an employer that you never worked for

If you discover that you have been a victim of tax-related identity theft, you should take the following steps to protect yourself:
▸ Contact the three credit agencies (Equifax, Experian and TransUnion) and place a ‘fraud    alert’ on your credit report
▸ File a report with local law enforcement
▸ Report the fraud to the IRS; upon doing so you will receive IRS Form 14039, also    known as the “Identity Theft Affidavit”
▸ Continue to pay taxes and file your return even if it must be in paper format
▸ Check your Social Security Administration earnings annually

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