Can Identity Theft Result in an Audit?
Identity Theft Victims Are About to Be Notified
Believe it or not, identity theft can get you into trouble with the IRS. How? Because many illegal aliens use the social security numbers of legitimate US citizens when filling out their W-4s. When their employers report those earnings, the tax return info of the people who actually have that social security number don't jive. Then all "you know what" breaks loose.
An Ugly Situation
Let's say you live in Kansas and you work 9 to 5 earning about $30,000 a year. Your employer reports those earnings to the IRS and you diligently file your tax returns each year. Everything should be fine, but something isn't. You've unknowingly been the victim of identity theft.
Someone in California has been using your social security number on their W-4. Why? Because they don't have one of their own. So they earn $19,000 last year and their employer reports that to the IRS using YOUR social security number. Now the IRS thinks you're making $49,000 per year, but you're only reporting $30,000 of it. Uh oh.
What to Do About It
So let's say you get a letter from the lovely IRS demanding that you pay taxes on the income you didn't claim on your tax return. What do you do? First, get down to the bottom of what's going on. The IRS should be able to give you some insight as to who reported these earnings. You then go file a police report and explain the situation to the IRS, providing them the police report number. Once they know you've been the victim of identity theft, you're no longer the criminal in the situation.
The IRS should help you through the situation and in most cases they will. Unfortunately, not all IRS employees are created equal and some won't be so understanding or helpful. If the IRS isn't cooperating, you might need an attorney. If you have identity theft insurance, the policy should cover this since the situation occurred due to an identity theft crime.