Tax Return Identity Theft

by | Oct 23, 2013 | Finance, Identity Fraud

Recently I was talking to an accountant friend of mine and he was telling me about one of his clients who had fallen victim to a serious scam. It all started when this person received a notice from the IRS telling him that he was due a refund from his tax returns. The only problem: He hadn’t even filed yet.

So the CPA contacted the IRS on behalf of his client, telling them:

  • The tax returns for 2012 hadn’t yet been filed;

  • The submitted returns were not legitimate; and

  • His client was not expecting a refund in any case.

As they delved deeper into the electronic “paper” trail, it was discovered that various account numbers were off, though the Social Security number was correct and used to file a bogus tax return. Luckily the IRS and the CPA were on top of if.

So from now on, whenever this taxpayer files, he has to fill out a signed affidavit with a copy of his passport and other identifying documents to prove that he is who he is claiming to be.

He can’t e-file for 3-5 years.

Unfortunately tax return fraud is something that has been happening a lot recently. Take these statistics from the IRS:

  • Tax return fraud is up 60% from year-ago levels;

  • $5.2 billion in tax refunds have been stolen so far this year;

  • The IRS stops nearly 5 million returns seeking refunds totalling over $20 billion.

  • Each tax identity theft case takes roughly 180 days to resolve.

It’s easy for criminals to e-file using a real name and social security number combined with a phony W-2 or fabricated Schedule C. In fact, tax return fraud is almost always perpetrated by filing electronically, with an attempt to arrange for refunds to be directly deposited into the thieve’s bank account. By doing their work electronically they leave behind no signed tax forms or envelopes or finger prints – and the refunds are disbursed before anyone catches on.

There is yet another way criminals can use your tax returns to make a quick buck: Unscrupulous return-preparers.

A small-yet-well-known seasonal tax preparing firm has recently been accused of modifying the bank routing number returns and diverting electronic refunds to their own account. Worse yet, some fly-by-night tax preparers have been caught manipulating the data on their clients’ tax returns in order to claim more dependents to increase the amount of the refund they are stealing.

With so many high tech scams around, my advice to people looking for new tax preparers is to ask around before you commit to a new tax professional. Verify they have strong ties to the community and that they’ve been in business for a while. In other words, don’t go with somebody who hangs out their shingle and does tax returns only during tax season. Go with a reputable CPA firm that is open all year round.

Also: Do not respond to emails that say they’re from the IRS. Like every other reputable vendor, the IRS does not contact tax payers via email.

I hope you’ll take these considerations into account as 2013 draws to an end. There is an IRS Identity Protection Unit available to all taxpayers at 800-908-4490. Let’s hope that if you or a loved one ever does fall victim to fraud, the IRS will help you catch it early.


Judith Heft, Principal, Judith Heft & Associates is a personal financial concierge with offices in Greenwich and Stamford. She can be contacted via email at [email protected] or by phone 203-978-1858.