How Did Someone Hijack My Tax Refund?!
People who waited until
Wednesday’s deadline to file their tax returns may have found that someone hijacked
their refund. That’s what happened to
several of my clients this year. Here
are a couple of their stories:
One client arrived home to
find a letter from the IRS that they were conducting a review of questionable
income amounts and claims for credits listed on his return. His conversation went like many thousands before...
Client: "What return? I haven't even filed yet."
IRS: "Ummm…yes you have".
Well my client was right of course; he hadn't filed his return...but
someone else had filed it for him.
Other clients discovered
the identity theft when I attempted to electronically file the return. The IRS will not accept a return that has
already been filed.
Naturally, the first
question they ask me is: "How can
this happen?" That's a good question and
one I myself wanted to know the answer too. This is how it works:
A criminal steals your
identity (more on that later), files a bogus tax return in your name and
collects a refund check from the IRS.
Then when you go to legitimately file your return, it’s rejected by the
IRS because someone else already filed as you!
It’s such a simple scam you would think surely the IRS is protecting themselves and taxpayers from it….but they aren't.
Corey
Williams told his story to 60 minutes.
He used to be a legitimate tax preparer until his boss turned him on to
the scam. Before he was arrested and
sentenced to 40 months in prison, he made millions of dollars. He said all you need for this fraud is a
laptop, internet access, someone's SSN, date of birth, not even their
name.
According to Mr. Williams, it's as easy as one, two, and three.
1.
Collect or buy a list of
stolen identities (available for sale on the black market for $3 - $5)
2.
Go to one of dozens of tax
preparation sites on line, and using the stolen social security numbers and
dates of birth you fill out a completely bogus W-2 form, claiming a modest
refund of a few thousand dollars.
3.
Tell the IRS where to send
the money, your house, wired to your bank account or loaded onto a prepaid
debit card.
That's it. You simply put
down a name and a SSN, make up an employer or the amount of money that was
earned and withheld. Send it off to the
IRS and they will send you a check back for the refund.
But how did the IRS not catch this?
You would think the IRS computers would notice that they were
sending thousands of checks to a single address. But they don't.
And you might expect the IRS would match taxpayer returns with
legitimate W-2 forms filed by employers.
It doesn't do that either because the law requires refund checks to be
sent out within six weeks; and employer W-2's are often not available until
months later. So if a bogus return is
received before a legitimate one, the check will go to the criminals.
It’s a pay first, ask questions later tax refund system.
This scam has been around since 2008 and the IRS still cannot tell
if the person filing the return and claiming the refund is actually the real
taxpayer. In 2014 the IRS lost $6.5
BILLION in fraudulent refunds.
Yes that's B for billions.
The IRS is well aware of the magnitude of the problem. But with budget cuts and an outdated system
there is only so much they can do.
"We’re running
applications we were running when John F. Kennedy was president. “
- John Koskinen
IRS Commissioner
But despite the $200 million IT budget cut this year the most
notable step the IRS has taken to protect taxpayers has been the roll-out of an
identity protection PIN. Essentially, if
you’ve been a victim of tax fraud, the IRS will issue a PIN number to use when
filing electronically.
This is designed to address the problem inherent to this kind of
fraud: Unlike passwords or a credit card, you can’t “reset” your SSN – you’re
stuck with it for life.
Unfortunately, the PINS are currently only available to filers
with past resolved fraud cases as well as to taxpayers in Georgia, Florida and
the District of Columbia—areas with high incidences of fraud. They are also
available to taxpayers with suspicious activity on their accounts.
To get a unique PIN number or find out if you are eligible, visit the
IRS website or call 1-866-704-7388. You will be asked for information from
last year’s tax return and can then select a six-digit PIN to file your return.
The PIN is only good for one tax year, so the IRS will send you a new one in
December.
April 15th has come and gone but tax refund fraud will
be sticking around until some major changes are made to how we file returns. Researching this issue has helped me realize how serious identity
theft is and the measures that everyone should be taking to protect their
personally identifiable information. No one is immune no matter how tightly held
your personal information is.
Stay tuned for articles and resources on what you can do to minimize
your exposure.
