Feb 10, 2008

Identity Theft and your taxes: Part 2 of 4- the problem emerges...

How the tax problem emerges

It starts when you file your taxes with all of your information- Forms W-2, Forms 1099, and other income items and deductions. However, unknown to you, someone else has your social security number and the payments to them are reported as YOUR income. The IRS will match your tax return with all of the information statements they have received (the IRS calls it their “IRP” file for “Information Returns Processing”). This will not happen instantaneously. The IRS usually takes about 12-18 months to accumulate this data, scrub it for items they wish to match against identifying numbers, and send out discrepancy letters (referred to as “CP 2000” letters) via its “Automated Underreporter Unit” or “AUR”. Last year alone the IRS assessed over $14.9 billion in AUR discrepancies.

It is probably one of the only times that you will wish for a face-to-face IRS audit. This is due largely because the IRS relies on the IRP program. It essentially becomes your word against theirs and you start playing private detective to clear up the mess. In the time that you are cleaning up the mess, ignoring the IRS is not an option. After the CP 2000 letter, the IRS will most likely assess you and start collecting on the tax in about 6 months after the letter. After the assessment, you are faced with an uphill battle of removing the assessment while the IRS has the right to file tax liens and levy your wages and bank accounts.

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