Tax Return Refund Fraud at Epidemic Levels

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Ronald Williams, President of Talon Executive and Security Services, Costa Mesa, California explains that as tax season is officially over, and while some taxpayers have already spent their much-awaited refund, others are still scrambling to pay back Uncle Sam. But a third group of taxpayers found themselves shocked and frustrated this year after discovering the unthinkable—their tax refund had been stolen.

Unfortunately, according to experts, tax return fraud is quite a simple crime. Perpetrators steal a taxpayer’s Social Security number and then file a tax return either under the original taxpayer’s name or under a phony name. They then download the refund onto a debit card designed for people without bank accounts or deposit it into an account they open and then quickly close. In many cases, the thief is the victim’s trusted tax preparer, who prepares a false W-2 form.

So how do thieves obtain Social Security numbers? Some perform what is referred to as phishing, fooling unsuspecting people to reveal their personal data over the Internet or phone. Others break into computer systems at work and obtain secure information. Still others do it the old-fashioned way, stealing wallets and papers containing personal data.

This past February, a former U.S. Postal Service carrier pleaded guilty in one of the largest tax return fraud cases ever uncovered. Bennie Haynes of Dayton, New Jersey, along with his sidekick Manuel Rodriguez, filed more than 8,000 fraudulent returns that sought $65 million in refunds, causing the IRS to lose more than $12 million. The men used birthdates and Social Security numbers belonging to Puerto Rican citizens to create Form 1040 forms that falsely reported wages and taxes withheld. They then paid cash bribes to mail carriers to intercept refund checks.

When it comes to tax return theft, no one is immune. One news reporter interviewed an entire police department unit and learned that nearly every employee had been victimized. Elderly people, students, white-collar workers, teachers, teens, members of the military, self-employed mothers and even the deceased have all found themselves victims of this scam.

Tax return theft victims do not realize their refund has been stolen until they go to file their return. Upon doing so, they learn a fraudulent tax return has been filed under their social security number, and the nightmare begins. Each victim must immediately contact the IRS and wade through a series of procedures to receive their return. This process can often be quite difficult, as the IRS has to first establish that the person is the true taxpayer and not the perpetrator. In some cases, perpetrators claim that they are the victim, complicating things even further. Most victims do not see their return until 180 days later.
Experts have several suggestions to help taxpayers avoid tax return theft. They suggest never filing a return at a Wi-Fi spot, such as a coffee shop; never leaving any confidential information lying around; not carrying one’s Social Security number in a wallet; checking one’s credit report frequently; and never giving any personal information over the phone, mail or Internet. The IRS adds that they will never correspond via email. Lastly, experts stress to never, ever sign a blank tax return.

Though the government has made some headway on this issue, they still have far to go. Over 770,000 taxpayers who have been victimized now have special protection pin numbers. According to a recent Bloomberg Report, President Obama’s 2014 budget plan includes a proposal to combat the rise in tax return theft and identity theft. The proposal includes a $5,000 civil penalty for tax-related ID theft, restricting access to Social Security death records and allowing employers to avoid putting Social Security numbers on W-2 wage reporting forms. But is this enough to combat this rapidly growing crime?

This year, taxpayers should take measures to become proactive before they find themselves the next victim of tax return theft. And businesses should take cyber security matters seriously by protecting their systems before a breach occurs. With heightened awareness and proactive thinking, we can all help stop this increasingly detrimental crime in its tracks.

We welcome you to contact our office should you have any questions about this email or is contents.

The above information is provided for general information purposes only, and does not constitute legal advice. Successful implementation of the above-described techniques requires careful consideration of facts particular and unique to each situation and, therefore, should only be considered after a detailed consultation with an attorney. The above information is not intended to create an attorney-client relationship between the Law Offices of Daniel D. Kopman/Kopman Law and the reader. Such relationship would only arise, if at all, upon negotiation and execution of a written fee agreement.

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