Identity Theft is a Big Deal with Billions of dollars per year being paid out in fraudulent refunds.
So you file your tax return and everything seems fine. What you don’t know is that someone already used your Social Security number and filed a tax return requesting a large refund. They fabricate the income and withholding amounts.
This is what happens next.The IRS compares the income that is reported to them (W-s & 1099) with what was reported on the tax return (The fraudulent tax return since it was filed first).
The IRS accepts ALL of the income claimed on the return but disallows the withholdings. Then they add all of the income and withholdings that were reported to it and send you a form CP-2000 pointing out the discrepancy and showing how much you would owe if the information is correct.
How much will you owe? Let’s assume that you had correct withholding and wouldn’t have owed any money. The CP-2000 will show you owe taxes on the fictitious income declared on the fraudulent tax return. Then you will owe the amount of the Refund. Then you will owe penalties for not having paid them amounts their records show you owed.