Fraudulent Tax Return Total Could Soar to $21B This Year

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BLOOMFIELD TOWNSHIP, MI – A sure sign that the deadline to file taxes with the Internal Revenue Service is near:

Over the past two weeks, the Bloomfield Township Police Department has taken more than a dozen reports of identity theft the victims discovered when they learned returns had already been filed in their names.

After Monday’s midnight filing deadline, the problem could be even worse — and probably will be. Over the past two years, Bloomfield Township police say they have taken hundreds of similar calls.

The Department of Justice has estimated that the scammers could file $21 billion in phony tax returns this year. In 2014, the last year for which statistics are available, the IRS identified more than 2.1 million tax returns that claimed fraudulent refunds that totaled more than $15.7 billion, the Justice Department said.

How It Happens

You probably won’t know that a phony tax return has been filed in your name until a second return — the legitimate one — is filed, do-it-yourself software provider TurboTax says. Whether it’s a legitimate or fraudulent tax return, the IRS automatically rejects the second return.

Bloomfield Township’s Det. Sgt John Weise of the Investigations Division recommends that residents monitor all accounts in their name and regularly check the credit reports. They may also use a private credit monitoring service to assist in their efforts.

Cyber criminals may be in places you’d least expect to find them — for example, at a medical office. That happened to as many as 1,400 patients at hospitals in West Bloomfield Township and Detroit whose personal information was stolen by a couple who were sentenced to prison earlier this year in U.S. District Court for Michigan’s Eastern District.

They filed phony tax returns in the names of at least 305 patients, defrauding the government of nearly $500,000, federal prosecutors said.

The culprit may also be your tax preparer.

In 2015, the Justice Department shut down more than 35 fraudulent tax-return preparers across the United States, and has identified preparer fraud as one of 2016’s “dirty dozen” tax scams.

The defendants included both large-scale return preparation franchises and small, independent return preparers, the Justice Department said. Most preparers are honest, but those that charge clients a percentage of the return may intentionally file false returns to increase their own fees. And some who charge by the form may intentionally prepare incorrect forms their clients don’t need to increase their compensation.

Taxpayers may think that takes them off the hook.

Not so, Acting Assistant Attorney General Caroline D. Ciraolo of the Tax Division said in a statement.

“Taxpayers might think that they’re getting a good deal on their taxes, or that as long as someone else prepares the return, they’re not responsible,” Ciraolo said. “They’re wrong. Taxpayers who have their return prepared incorrectly are required to pay the tax they owe, or pay back the refund they weren’t entitled to get.

“These clients might also owe interest and penalties, which can be substantial," Ciraolo said.

What Fraud Victims Should Do

If you discover someone has filed a phony return in your name, your first step should be to notify local law enforcement authorities.

“The IRS investigates these incidents,” the Bloomfield Township Police Department’s Weise said. “However, a report with your local police department may be required to obtain a seven-year fraud alert.”

TurboTax offers the following:

You’ll have to file IRS Form 14039 to alert the IRS and include information about the tax year affected and the last return you filed before your identity was stolen, then mail it to the IRS with a copy of your Social Security card and driver’s license, U.S. passport, military ID or other government-issued identification.

• If you received a notice from the IRS about the fraudulent return, mail the form and the documents to the address shown on the notice.
• If you didn’t receive an IRS notice, mail your documents to: Internal Revenue Service; P.O. Box 9039; Andover, MA 01810-0939

If the IRS flags or stops a suspicious tax filing, you may get a Letter 5071C asking you to verify your identity. You can do by phone or through the IRS verification service — https://idverify.irs.gov — the quickest way to resolve the problem. These notices are only sent by U.S. mail, and won’t ask you to provide the information by phone or email. If that happens, you’re being scammed.

If you can't confirm your identity using the IRS' online Identity Verification Service, you can call the IRS at the phone number included in the letter.

When confirming your identity, you will need:

1. Your name, date of birth and contact information.
2. Social security number (SSN) or individual taxpayer identification number (ITIN).
3. Your prior year tax return along with supporting documents such as W-2s, 1099s, and Schedules A and C if you filed them.

You should take additional precautions as well, TurboTax said. If scammers have enough of your personal information to file a fraudulent tax return, they can use that to commit other crimes. After alerting the IRS, you should also place a freeze on your credit report file with all three credit bureaus to prevent unauthorized accounts from being opened.

The IRS said it expects more than 70 percent of taxpayers to again receive tax refunds this year. Last year, the IRS issued 109 million refunds, with an average refund of $2,797.

Image credit: Chris Potter via Flickr / Creative Commons