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How to Avoid Tax Refund Identity Fraud

tax refund, identity fraud

Submitted by Dena Kemmet, Extension Agent/Family and Consumer Sciences

What is tax refund identify fraud? That's where someone uses your Social Security number (SSN), birth date and other private information to file a fraudulent income tax return in your name and then pockets the resulting tax refund. Often, a victim's first clue is a letter from the IRS contesting their legitimate tax return, saying one has already been processed under that name. It can take months – and mountains of paperwork – to undo the mess.

This scam has escalated in recent years thanks to a convergence of events:

  • There's a thriving black market in personal information stolen from healthcare facilities, nursing homes, schools, insurance companies and other institutions that require a social security number as identification.
  • The IRS is pressured to begin issuing refunds shortly after taxpayers start filing returns in mid-January, even though employers and financial institutions aren't required to submit withholding and income documentation until the end of March. Thus, disparities often aren't caught until months later.
  • The growing popularity of electronic filing, where hard-copy documentation (like W-2 and 1099 forms) isn't required.
  • Many people receive refunds via direct deposit and prepaid debit cards. Criminals open and close accounts using bogus addresses long before the theft has been detected.

But all is not lost. This tax season, the IRS has stepped up its efforts to protect taxpayers from a wide range of schemes, including moving aggressively to combat identity theft and refund fraud The IRS continues to increase its efforts against refund fraud, which includes identity theft. During 2012, the IRS prevented the issuance of $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.

Combating identity theft and refund fraud is a top priority for the IRS, and they are taking special steps to assist victims. For the 2013 tax season, the IRS has put in place a number of additional steps to prevent identity theft and detect refund fraud before it occurs.

So what should you do if you've been victimized? Typically, the IRS will send you a notice that:

  • More than one tax return for you was filed;
  • You have a balance due, refund offset or have had collection actions taken against you for a year in which you didn't file a return; or
  • IRS records indicate you received wages from an employer you don't recognize. This could indicate that someone has used your personal information to get a job.

If you receive such a notice, don't ignore it. Complete an Identity Theft Affidavit (IRS Form 14039 at www.irs.gov) and return it with a copy of the notice to the address provided on the notice. If you did not receive a notice but believe you may be at risk, the form contains separate submission instructions.

The IRS's Identity Theft Protection website (www.irs.gov/uac/Identity-Protection) includes tons of helpful information, including ways to tell whether your identity may have been stolen, how to report a breach and tips to avoid identity theft.

Source: Tax Scams for 2013; www.irs.gov/uac/Newsroom/IRS-Releases-the-Dirty-Dozen-Tax-Scams-for-2013

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