Someone took my tax refund!
According to a January 2015 Government Accounting Office (GAO) report, the IRS estimated it prevented $24.2 billion in fraudulent identity theft tax refunds occurring during the 2013 tax year. Unfortunately, the IRS also paid an estimated $5.8 billion that year for tax refund requests later determined to be associated with fraudulent returns. The GAO noted that because of the difficulties in knowing the amount of undetected fraud, the actual amount could far exceed those estimates. Tax refund fraud has become so prominent it was reported that some states suspended electronic state filings because of a sharp increase in suspected fraudulent returns. In February 2015, TurboTax, the most widely-used tax software, stopped the filing of state returns for about 24 hours because of suspected fraud.
The IRS is well-aware of the magnitude of the problem. But budgetary constraints and legal mandates have created a system where it is often unable to follow up on the red flags that its system detects until after a refund check has been cut and sent.
What can you do to protect yourself? The most important thing is to protect your social security number. All a fraudster needs to file a fraudulent tax return is a person’s name, date of birth, and social security number. CNNMoney.com reported last year that hackers stole more than 6.5 million social security numbers in 2014. Criminals will then use the information they have stolen to file false returns and pocket the refund checks, often before the legitimate taxpayers have had a chance to submit their own returns. It’s a crime made easier by electronic tax filing, which allows the fraudsters to mass-produce fraudulent returns and receive the fraudulent refund via mail, direct deposit, or prepaid credit card within a month.
Unfortunately, there is very little a taxpayer can do to protect themselves from becoming a victim. A few best practices would include filing as early in the tax reporting season as possible. The scammers tend to file fake returns early in the season so they can beat the real taxpayer to the punch. If you file first, it’s the scammer’s return that will be rejected. You can also request an identity protection PIN from the IRS. To get a unique PIN number, simply visit the IRS website or call 1-866-704-7388. You will be asked for information from last year’s tax return and can then select a six-digit PIN to file your return. The PIN is only good for one tax year, so the IRS will send you a new one each December.
In addition, the following are tips the IRS provides to help protect you from becoming a victim of identity theft:
- Don’t carry your Social Security card or any documents with your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) on it.
- Don’t give a business your SSN or ITIN just because they ask. Give it only when required.
- Protect your financial information.
- Check your credit report every 12 months.
- Secure personal information in your home.
- Protect your personal computers by using firewalls, anti-spam/virus software, updated security patches, and make sure to change passwords for Internet accounts.
- Don’t give personal information over the phone, through the mail, or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.
If you believe you are a victim of identity theft, the IRS recommends the following:
- If you receive a notice from the IRS and you suspect your identity has been used fraudulently, respond immediately by calling the number on the notice.
- If you did not receive a notice but believe you’ve been the victim of identity theft, contact the IRS Identity Protection Specialized Unit at 800-908-4490 right away so they can take steps to secure your tax account and match your SSN or ITIN.
- Also, fill out the IRS Identity Theft Affidavit, Form 14039.
- In addition, we recommend you take additional steps with agencies outside the IRS:
– Report incidents of identity theft to the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338 or TTY 866-653-4261.
– File a report with the local police.
– Contact the fraud departments of the three major credit bureaus:
Equifax – www.equifax.com, 800-525-6285
Experian – www.experian.com, 888-397-3742
TransUnion – www.transunion.com, 800-680-7289 - Close any accounts that have been tampered with or opened fraudulently.
Reggie Novak is a Senior Manager in the Audit and Accounting Services Group. As a Certified Fraud Examiner, Mr. Novak can assist you with prevention services, including recommending internal controls and other measures to be implemented to prevent theft or misappropriation. If fraud is suspected, he can investigate and present his findings and recommendations. Contact Reggie Novak at 216.831.7171 or rnovak@cp-advisors.com for more information.
