Tax return identity theft is on the rise and will reach an all time high in 2016. Criminals or the perpetrators plan to illegally obtain your name and Social Security number, create phony W-2s and related forms, and file a bogus tax return before you can file your legitimate return. Many of these crooks are organized criminals who have figured out that it is easier to rip you off by filing a bogus tax return than robbing a bank or hijacking a car. These 21st century thugs are ripping off the US Government as well. Uncle Sam is losing millions of dollars if not potentially billions a year in bogus tax refunds and you the taxpayer are out in the cold if you are one of the unlucky taxpayers who get their identity stolen. Do you want to learn some basic prevention steps to keep your tax return safe from identity theft this year.? So stay with us here on TaxView with Chris Moss CPA Tax Attorney to find out how to stop the perpetrators and protect and keep safe your tax return from identity theft in 2016.
The typical identity theft scheme is for the perpetrator to file an early tax return with your social security number and your name but a different address around February through March up to the first week in April. The bogus tax return always shows a refund from a bogus W2 for a company you don't work with an address you don't live at. The mailing address on the tax return could be a PO Box or an executive office suite or any rented house. Sometimes the address could be an abandoned or foreclosed property where there is an outside mailbox or a mail slot in the door with no occupants to get the mail.
Here is how the scheme works: For manual checks, the refund check comes to the designated address and the mail is picked up by the perpetrator. The check is then either forged and cashed or deposited into a legitimate account but with a fictitious owner. There could be hundreds if not thousands of these refunds for hundreds of taxpayers from the same address to which the perpetrator has stolen identities from. Currently the IRS has absolutely no mechanism to detect such mass refund requests originating from the same address. For electronic refunds, bank accounts are opened and then closed immediately after thousands of bogus refunds have been deposited with the money wired abroad without a trace. While the Government eventually discovers the identify theft when the IRS computer system matches the bogus W2 to the company you supposedly work for, that matching process does not happen immediately when the tax return is filed, but perhaps sometimes months later. By then the refund had already been issued and soon a few weeks later stolen by the perpetrator all prior to the IRS discovering the identify theft.
In addition the crooks know this crime must be a high volume scam to success. Criminals realize that many of their bogus tax returns will be delayed or questioned by the IRS. So when for example a few hundred of the refunds are received of the thousands of returns filed, the perpetrators close shop and move on. By the time the government investigates the crooks have moved on, new locations have been secured and the illegal operators get ready for the next year’s filing season to start the whole operation again.
How serious is tax return identity theft? IRS Commissioner Koskinen during a prepared speech on November 19, 2015 in Washington DC noting that "increasingly, these crimes are being perpetrated by sophisticated, organized syndicates. They’ve been able to gather almost unimaginable amounts of personal data from sources outside the IRS. They use this data to file fraudulent federal and state tax income returns, and claim huge refunds." More specifically, the inspector general of the IRS indicate that bogus tax filings are in the millions with billions of dollars potentially at stake. A new proposed bill “Stop Identity Theft Act of 2015” calls for the Attorney General to: (1) make use of all existing resources of the Department of Justice (DOJ), including task forces, to bring more perpetrators of tax return identity theft to justice; and (2) take into account the need to concentrate efforts in areas of the country where the crime is most frequently reported, to coordinate with state and local authorities to prosecute and prevent such crime, and to protect vulnerable groups from becoming victims or otherwise being used in the offense.
What can you do right now? In addition to the obvious, which is filing as early as possible to beat the perpetrator to filing first, have your tax attorney continuously check on line with IRS Electronic Account Resolution (EAR) throughout tax season to make sure you are safe up to the moment you file your tax return. When your tax attorney will make her inquiry with the EAR portal prior to the tax return being filed, she will hopefully get a zero transcript indicated no tax return has yet been received by the Government. But beware if you file late and the response is like this one you will know there has been identify theft: Dear Tax Professional, Your office submitted a request for taxpayer information. We apologize for the inconvenience but we are not able to process your request at this time. Please have your client contact the Identity Protection Specialized Unit (IPSU) at 800-908-4490. Sincerely Yours Director, Electronic Products & Services Support.
What happens to you after your tax return has been filed by the identity theft perpetrator? While I hope you never have to call the Identify Theft Department of the IRS, once you get a hold of them you realize the road ahead is not going to be easy. You are required to complete Form 14039 Identity Theft Affidavit and submit copies of various documents like a passport and drivers license proving you are who you say you are. All documents and original tax return have to be submitted in a paper version and mailed either snail mail or overnight delivery. Processing takes up to six months or longer.
What can you do right now to prevent your 2015 tax return from being stolen from you when you file this Spring in 2016? First and most important, file early in 2015. There is no better way to stop identity theft than to file early. What if you have not received your K1s yet or other supporting documentation. By all means have your tax attorney record the information direct from the issuers of the K1s by phone or emails. Create a fairly accurate record of what your K1 will show. File early and true up any small immaterial differences the following year. Disclose to the Government what you are doing in your tax returns prior to filing and explain you are filing early to avoid identity theft.
Second, if you move, please have your tax attorney notify the IRS of your new address. Call the government and make sure they have your new address on file before you file your tax return and explain that you are concerned about identify theft. Tell your CPA Attorney you are concerned about identify theft so your tax professional will check up on your account throughout the year. Never give your entire social security number to anyone on the phone. Vendors will be happy to have you call them back to verify who they are before you give them your social security number.
Perhaps sometime soon, the Government will refuse to refund any money to anyone based on a filed income tax return until the taxpayer’s identify is confirmed either by a follow up phone call or a special PIN# identification entered by email or text. This security identification process would significantly delay you all from receiving your refunds but would dramatically reduce the high volume of identify theft in 2016. When you compare the inconvenience of delayed refunds to the absolute nightmare of having your tax return hijacked by criminals I would choose the delay of having my identify confirmed. If you agree with this approach, ask your tax attorney to communicate with your elected officials about your concern with tax return identify theft. Together we can help the IRS fight back against tax return identity theft and help you all keep your tax returns secure from theft.
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