LAS VEGAS – It’s the most prevalent tax scam – and the peak season is upon us. We’re talking about tax identity theft and refund fraud.
This scam has become a serious problem due to its simplicity. Identity thieves steal sensitive personal information – primarily Social Security numbers and birthdates – and then file fake tax returns requesting refunds using the stolen information. If thieves file bogus returns before victims file their legitimate tax returns, the IRS could send a refund check to the thief.
Victims, meanwhile, are left with the task of having to demonstrate to the IRS that the first return filed was fraudulent. Resolving the matter can take weeks or months and countless hours.
An exploding problem
Tax identity theft and refund fraud first surfaced around 2008, and the problem has been a prevalent threat ever since.
According to IRS officials, the agency initiated 1,492 identity theft-related investigations in fiscal year 2013, an increase of 66 percent over investigations initiated the previous year.
The agency in 2014 reported that it has stopped 14.6 million suspicious returns, and protected more than $50 billion in fraudulent refunds.
One of the biggest challenges when it comes to dealing with tax identity theft is the fact that most people don’t find out they are victims until it’s too late. Typically, taxpayers get a notice from the IRS after they have filed their personal income tax return informing them that a tax return has already been filed using their Social Security number.
So, now is the time to be diligent about guarding your Social Security number and other sensitive personal information. Most tax identity thieves strike early in the tax-filing season so they can file bogus returns before victims file their legitimate ones.
Be on the lookout
If you receive an email, text or social media message supposedly from the IRS asking for your Social Security number or other personal information, don’t reply to it. The IRS will not use these communication methods to ask for your sensitive personal information. Instead, forward such messages to email@example.com for further investigation.
What if you’re victimized?
If you do receive a notice from the IRS informing you that a bogus tax return has been filed in your name, contact the IRS Identity Protection Specialized Unit right away by phone at (800) 908-4490. At this time, you may be asked to complete IRS Form 14309, which is an IRS Identity Theft Affidavit. You must then send this and some kind of proof of your identity (like a copy of your Social Security card or driver’s license) to the IRS.
In addition, you might want to file a local police report and an identity theft complaint with the Federal Trade Commission. Consider putting a fraud alert on your credit reports, which you can do by contacting any of the credit reporting companies. Whichever credit rating bureau you contact will then let the others know about your fraud alert.
Chris Wilcox is the taxation and transition partner and co-founder of JW Advisors, a Las Vegas-based consulting firm specializing in business financial consulting, litigation support and forensic accounting, assurance and tax services. For more information, call (702) 304-0404.