Tax Refund Fraud

Black burglar maskYou may or may not be aware that tax refund fraud is a big problem in the U.S. And it’s getting bigger. TurboTax, the most widely used do-it-yourself tax return program halted state filing through it’s system last week for 24 hours because of fraudulent activity. It has since resumed electronic filing, but concerns remain.

Last year, the IRS “suspected and stopped” 3.6 million returns showing refunds, and that number is expected to rise again this year.

In tax refund fraud, a variation of what’s called “true-name fraud” by police departments, the perpetrators file a tax return with the city, state or federal government using someone else’s name and Social Security number, but with a new address or a different DDA (direct deposit account, i.e. checking or savings or stored value card) account to collect a refund, and then, very quickly, they’re gone. It’s very similar to the decades-old method of true-name fraud practiced by credit card thieves.

Victims usually don’t figure out the scam until they file their legitimate return. That’s when they typically find out that another return has already been processed in their name. And since, we’re talking about a government entity here, it can takes months before all this is ironed out and the taxpayer gets his or her rightful refund.

Now, if you think you’ve been a victim of tax return theft, you should contact the income tax agency in your state, or the IRS, or both. They will provide you with next steps and instructions.

If you’re already a previous victim of identity theft, the IRS will provide you with a six-digit “identity protection” PIN. All you have to do is ask. The IRS will send you a form that is essentially an affidavit, which you’ll return with various forms of identification. The IRS will then send you the PIN, which you will use when filing your return. If a return is filed using your information, but without the PIN, it will be rejected by the IRS.

And here is a recent development that is of particular interest to our clients:

If you file your returns from Florida or the District of Columbia, two of the worst places for tax refund fraud, and two spots where many Sareen and Associates clients are, you are eligible for the “identity protection” PIN program described above, even if you haven’t previously been victimized by this particular type of fraud. The IRS is running a pilot program that you can participate in that will allow you to use the PIN for your return.

Here is an unabashed plug for our firm – tax return fraud through professional CPA firms is almost non-existent, and so is data “leakage”. We safeguard your personal information here all the way through the process.

Other than using the PIN program, and using our firm for your return, the best defense is an offense. If you file your return early, then the scammers can’t file a fraudulent one using your ID.

One more thing: the IRS will NEVER initiate contact with a taxpayer by email. Bear that in mind if you’ve never had contact with the IRS before and an official-looking email shows up in your inbox.

Be careful out there, folks!

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