Identity thieves target tax refunds
Doing your taxes is painful enough. But it can be especially so when a scam artist files a phony tax return with your name, Social Security number and other personal information in an attempt to collect a refund.
Growing numbers of victims are complaining to the Internal Revenue Service and the Federal Trade Commission about this and similar scams, and one senior IRS official is urging the agency to do more to help victims.
Identity theft has become one of the “most serious problems” facing taxpayers, said IRS National Taxpayer Advocate Nina Olson in a report to Congress early this year. Among the major problems that can arise are delays or denial of refunds, the report said. Taxpayers could also face “the assessment of tax debts resulting from income” reported on the fraudulent return. The Federal Trade Commission received 20,782 complaints on tax-related identity-theft issues in 2007, up from 15,442 in 2006 and 8,041 in 2003. But Olson of the IRS believes those numbers “significantly understate” the size of the problem and the number of taxpayers hurt by it because, she says, the agency doesn’t have a comprehensive method of tracking the various types of identity-theft cases.
A Connecticut woman who prefers to remain anonymous was recently notified by a New York bank that her application for a refund anticipation loan had been rejected. “That blew my mind,” she says – because she hadn’t applied for such a loan and hasn’t yet even prepared her tax returns for 2007. She also recently received a letter from the New York state tax department questioning her 2007 return, which she hasn’t yet filed. She notified her accountant and the IRS of the situation.
“It’s horrible,” she says. She has no idea how her identity was stolen – but adds that “I now shred everything that comes to my house with my name on it” before throwing anything away.
In another recent case, the victim was a 53-year-old Michigan woman named Marie Mendoza. Early last month, Mendoza received a call from a representative of a nearby office of H&R Block Inc., the tax-preparation firm that had prepared her returns for the past decade or so. She says the Block representative asked her to bring back some paperwork she accidentally had taken with her two days earlier when she was there to file her return for 2007.
“I said, ‘What, are you kidding?’ ” Mendoza says. She replied that she hadn’t been to the Block office at all this year, hadn’t filed her tax return for last year – and isn’t planning to use Block because she feels they charged too much last year.
Mendoza soon discovered that someone had filed a fraudulent return in her name. The thief had arranged to collect $4,005 through an instant loan and already has pocketed the money.
Refund fraud isn’t the only type of tax-related identity theft. In other cases, the thief uses a stolen Social Security number to get a job in the U.S. In a typical case, that person’s employer later files a Form W-2 reflecting the wages, and IRS data systems attribute those wages to the rightful owner of that Social Security number. Victims discover the problem after getting a startling notice from the IRS asking about unreported income.
IRS officials say they have taken steps to combat the problem. But the agency “has not done enough to improve identity theft procedures for victims of identity theft or to secure its filing system from fraudulent filers,” Olson said in her report to Congress. IRS procedures “are reactive rather than proactive and assume taxpayers will have the wherewithal to contact the IRS and work their way through layers of employees until they reach someone with the authority to adjust the accounts,” she said.
If you’re stung by tax-related identity theft and are tied up in red tape, here’s one suggestion: Contact the IRS’s Taxpayer Advocate Service ( www.irs.gov/advocate). That’s the organization within the IRS, headed by Olson, designed to rescue people encountering “economic harm,” people who already have tried resolving their tax problems through normal IRS channels or those who think an IRS system or procedure isn’t working as it should. Each state and IRS campus has at least one local taxpayer advocate, who is “independent of the local IRS office and reports directly to the National Taxpayer Advocate,” according to the IRS Web site.
“There is no sure way to prevent” getting hit by identity-theft criminals, says Brian Lapidus, chief operating officer of the fraud solutions division of Kroll Inc. But here are a few common-sense tips that may reduce your chances:
•Beware of phony e-mails that appear to be from the IRS. “Phishing” scams can appear in many different forms and guises, but the basic purpose is to trick you into revealing personal and financial data, such as Social Security, bank-account or credit-card numbers. In a typical case, the e-mail says you’re entitled to a refund for a specific dollar amount. But first you have to click on a link in the email to get a special claim form, which asks you for personal information.
The IRS says it “does not send unsolicited email about tax account matters” to individuals, businesses, tax-exempt groups or others.
•If you hire someone to do your taxes, be sure you know and trust that person well and have checked out his or her credentials carefully. You’re handing over sensitive information that you don’t want to fall into the wrong hands.
•In general, make every effort to protect the confidentiality of your key personal information, especially your Social Security number. Be careful to safeguard the privacy of sensitive personal data you store on your computer or your PDA.