CPAs contend with tax ID theft.

• Author: Bonner, Paul
• Position: Certified public accountants

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Tax-related identity theft fraud remains a widespread problem that is often difficult for victims and their tax preparers to correct, CPAs affirmed in a recent survey. For a second year, the annual tax preparation software survey conducted by The Tax Adviser and the Journal of Accountancy included questions about practitioners' experiences with tax identity theft (for other results, see "2016 Tax Software Survey," p. 570). For the 2016 tax preparation season, 59% of CPA tax practitioners said one or more of their clients were victims of tax identity theft during the year. That percentage is down slightly from the 63% of respondents who answered the question the same way in 2015. (1)

Extent of the Problem

While most practitioners encountered identity theft, for the vast majority of respondents, the number of clients affected was relatively small. Of the 2,184 respondents who provided a percentage of clients, 2,085, or 95%, said less than 5% of their clients were victims of tax ID theft, with 83 reporting it was between 5% and 10%, and only 16 respondents putting the percentage higher (see Exhibit 1). However, while the percentages were small, in most instances, practitioners said identity theft affected multiple clients. Only 272 respondents said just one client was victimized, while 1,258 put the number at two to five clients (see Exhibit 2).

Asked if clients were aware of the theft before attempting to file a 2015 tax return, almost half the respondents (1,083, or 49%) said some were and others were not. Respondents with only clients who did not previously know they had been victimized (29%) outnumbered those with only clients who did know (22%) (see Exhibit 3 on p. 580). This question showed a marked difference from 2015, when 44% of respondents said their clients were not aware of the theft beforehand.

Often, victims or their tax preparers discover the theft only when an attempt to file an income tax return fails because a return has already been filed for the tax year using that Social Security number (SSN). One of a CPA's first tasks then is delivering the unwelcome news to the client, who may then need to take additional measures to secure other financial accounts besides those needed to clear the taxpayer account. In the process, besides having to meet IRS administrative hurdles, CPAs often must manage clients' understandably distraught reactions in ways that may test their own relational skills. (2)

Difficulty...