It's Tax Season: How to Avoid $21B Fraud Problem

BLOOMFIELD TOWNSHIP, MI – Getting a refund in your bank account before spring break isn’t the only reason to file your federal income tax return early.

It’s also a good preventative step against identity theft, a problem the Internal Revenue Service says could balloon to $21 billion this year, CNBC reported.

Compare that to the $5.8 billion the IRS figures it paid to imposters filing fraudulent tax returns for tax year 2013, according to a report released last year. The government said the figure could have been much higher because of the difficulties knowing the amount of undetected fraud.

Bloomfield Township police have experienced the problem locally.

Police Detective Sgt. James Gallagher said the police department has taken hundreds of reports over the past couple of years from residents who said fraudulent tax returns were filed in their names.

“The best advice we can provide is to file your tax returns as early as possible,” Gallagher said. “The earlier filing reduces the risk of would-be identity thieves from filing taxes in your name.”

The problem is that little information is needed to file a return — your name, date of birth and Social Security number, all included in the information stolen in a mammoth hack on health insurer Anthem last year — and fake W-2 information.

“Cyber fraud, such as the breach at Anthem Blue Cross, may get all the headlines, but criminals are stealing your personal information in places where you’d least suspect it to happen,” he said.

For example, they might pose as IRS agents and make threatening phone calls to taxpayers in an attempt to gain personal information or scare the taxpayer into making a payment for taxes they don’t owe. They may steal W-2 forms out of the mailbox, or they make take a job at a medical office or hospital to get access to information, Ribble said.

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 last month 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.

IRS Implements Stronger Protections

The IRS held a security summit last year to address tax-related identity theft and refund fraud. As a result, stronger protections for taxpayers and the nation’s tax system have gone into effect for the 2016 tax filing season.

The new measures attack tax-related identity theft from multiple sides, according to an IRS statement.

Many changes will be invisible to taxpayers but help the IRS, states and the tax industry provide new protections, the agency said. New security requirements have been implemented for filers who prepare their taxes online, especially when they sign in to their tax software accounts, to better protect their tax software accounts and personal information, the IRS said.

Identity theft can occur whether you’re filing electronically or using the paper method, according to U.S. News & World Reports.

If you’re e-filing, make sure your computer has the most up-to-date virus software and that you’re filing from a secure connection, not a public Wi-Fi connection.

If you plan to mail your tax return, send it from a U.S. Post Office or some other secure carrier. Don’t leave it in your mailbox for the carrier to pick up.

If Your Identity Has Been Stolen ...

You probably won’t know that a phony tax return has been filed in your name until a second return 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.

What should you do if a phony return has already been filed in your name? 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.

Additional Precautions

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.

Also, the Federal Trade Commission encourages you to file an identity theft report with your local police department and with the FTC online.

Tax filers have until Monday, April 18, to file their 2015 tax returns and pay any tax due because the Emancipation Day holiday in Washington, DC, falls on Friday, April 18. Taxpayers in Maine and Massachusetts have until Tuesday, April 19, because of Patriot’s Day observances on April 18.

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.