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Tuesday, February 14, 2017

Tax [Fraud] Season

Once the calendar year turns over thoughts of filing taxes begin. So do the warnings of tax fraud and prevention tips. Having been the victim of tax fraud I know the inconvenience of proving your true identity to the IRS; now having to file under a number rather than your true name. As the digital world expands, so does tax refund fraud. It’s a good bet that you know someone who has been a victim or that you, yourself, are a victim.


Most people will file their tax returns electronically, either themselves or through a tax preparer. It’s quick, it’s easy, you get your refund faster. Unless you get an error saying that you have already filed. You’re first reaction is that there is a mistake, but you soon realize that you have been the victim of identity theft. Someone has obtained your name and social security number and filed your taxes on your behalf.

It may not have been a direct theft in the classic sense. It could have happened during an electronic data breach of a larger scale or someone hacked your computer, any number of ways. Your information is uploaded to the dark web (it’s a real thing that criminals use to conduct their business or exchange information) and resold many times. The criminal then fills out an electronic tax return with your information and bogus financial information and has the refund sent to a direct deposit or PO Box. The IRS does compare information against past filings but that doesn’t occur until well after the refund has been issued. Software is in place to try and stop fraud, but, again, the refunds are issued so quickly it happens before any alarms go off.
You then have to go through an arduous process to prove yourself to the IRS, file the fraud report, and wait for the IRS to investigate your claim. If they find that you are a victim they will then issue your return and assign you an identification number to use for future filings. The whole process takes several months. Other than the waiting, it really wasn’t an unpleasant experience and the refund was issued in a timeframe shorter than expected. It’s also interesting to request a copy of the fraudulently filed return from the IRS. You get to see what deductions your other self made and the amount some PO box received.


One school of thought of being susceptible to fraud is filing returns late in the season, near the April 15 deadline. This gives the criminals time to file their fake returns and receive the refunds before you file. Tax regulators say to file early to get a refund as quickly as possible, thus beating the criminals to your money. States have even made the effort to streamline the process so that refunds are received as quickly as possible after the return is filed.

Law enforcement doesn’t comment on the timing of the filing, but rather to delay the issuance of the refund so that fraudulent returns can be identified.  At a recent tax security summit, the U.S. Attorney for Maryland, Rod Rosenstein, commented from the panel, “The quicker you are on paying refunds, the greater the risk of not finding fraud.”

Hawaii, Illinois, Louisiana, Minnesota, Montana, North Dakota, South Carolina, and Utah are some of the states that are slowing returns to further prevent fraud. Maryland issues refunds within two days of receipt of the return. The comptroller’s office relying on analytical software to detect digitally filed fraudulent returns. Additionally, Maryland will not issue refunds until the comptroller’s office has a W-2 on file. With these methods in place the comptroller’s office hopes to combat fraud while at the same time efficiently serving the taxpayers.

The Maryland legislature this year is considering a bill named the Taxpayer Protection Act of 2017. This bill would give the comptroller’s office broader authority to build criminal cases against fraud and extend the statute of limitations for prosecution to six years.

There is no way to know if your personal data has been stolen. Regarding taxes it is best to file early. If you do become a victim, report it to the comptroller’s office and IRS as soon as you are aware. Document everything you do and who you speak to. Secondarily, begin looking into your banking and credit cards as they may have been breached as well. Review statements and set up alerts.

Be sure to read our others posts related to identity theft.

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