Identity Theft and "Phishing"


“The IRS cannot stop all identity theft. However,
we are committed to continuing to
improve our programs.”


We had several interesting episodes take place this year, none of them were good news for our clients. 

In one case one of our preparers sat down and spoke with the clients and put together their returns.  This wasn’t the first year he had worked with them, they were returning clients and had been for at least four years.  The husband and wife brought their two children into the office with them for the visit.  The children are teenagers and they like to take the opportunity to teach them about the taxation process.

As usual we filed their return electronically while they were in the office, but the following day it was rejected and that was when we learned it couldn’t be processed by the IRS.  In the written explanation that accompanied the rejection we were told the primary taxpayer (the husband in this case) was deceased.  This was a strange comment because he appeared to be fine just the day before.

Obviously this had to be some kind of an error on the part of the IRS so we thought we should call the family and break the “bad” news to them.

Fortunately it was the father who answered the phone.  He seemed just as surprised as we were when we told him that he was deceased.  Actually he took it pretty much in stride and said he would call the IRS to find out what was going on and explain to them that, so far at least, unless they had plans for him he didn’t know about, he was just fine.

About an hour he called back and explained what was going on.

It turned out he had experienced a similar issue the year before with the IRS, but had neglected to remember (after all you only file taxes once a year).  It turns out he was the victim of Identity Theft and the way the IRS deals with the problem is they indicate on any electronic filings a notation that the taxpayer is dead unless they also include a special “Identity Protection PIN” (Personal Identity Number) when they eFile the tax return.  Otherwise the tax return must be mailed which delays the refund for several weeks. Once we placed the number on his return all his issues were solved but this was just the start to a number of other client issues we experienced for the first time this year.

In several other instances we tried to file several returns only to have them rejected and when we checked with either the IRS or our originating filing company, we would learn that someone else had already filed a return using the Social Security number of our client.  In one instance we were asked if we had an office in Florida because someone had already filed a return for that client and, “They received a very large refund.”

We told the company that while we didn’t have a second office, it did turn out that our client had worked in Florida. And of course he had filled out a W-2 for a company down there which had apparently opened up the can of worms.

In our industry it is just too easy to have your identity stolen so be careful.  Every time you go to the set you are asked to fill out a new W-4 which asks for exactly the information a person needs to file a fake return.  Obviously you have to trust that the Assistant Director in charge of collecting that information isn’t going to do anything fraudulent with it, but you quite honestly never know.

Pay Attention All the Time

We had a young lady come into the office one day because she was receiving letters from the IRS demanding that she pay taxes on money she had no idea about.  She was a nineteen year old model who was being billed for income she made working in two Delaware fish markets the year before.  It was readily apparent that she wasn’t responsible for the income.

We asked her if she had ever worked in a fish market.  She said she hadn’t even been to Delaware.  It turns out she did have her purse stolen a year before in California, but somehow all of her personal identification had made it all the way across the country and now the IRS wanted her to pay for someone else’s taxes.

The tax issues were ironed out with the IRS in just a few phone calls, but it took her months to get her life back in order including discussions with numerous departments of the Federal Government including Homeland Security.  So be careful about who has access to your personal information. 


IRS May Have Sent More Than $5 Billion Dollars to Identity Thieves

The IRS is having a lot of trouble itself keeping up with the problem. Investigators say the Internal Revenue Service may have delivered more than $5 billion in refund checks to identity thieves who filed fraudulent tax returns for 2011.  They estimate that another $21 billion could make its way to ID thieves' pockets over the next five years.

The Treasury Department's inspector general for tax administration says the IRS is detecting far fewer fraudulent tax refund claims than actually occur. Thieves assume the identity of a dead person, child or someone else who normally wouldn't file a tax return.

For example, investigators found one single address in Michigan that was used to file 2,137 separate tax returns seeking a total of more $3.3 million in refunds. In other cases, hundreds of refunds were deposited into the same bank account. 

The IRS said it stopped nearly 262,000 fake returns based on identity theft from being processed in 2011, preventing nearly $1.5 billion in refunds from going to criminals. That is more than a fivefold increase from 2010, when the agency stopped about 49,000 fake returns seeking $247 million in fraudulent refunds.

Unfortunately as good as the IRS may be at stopping the fraud, they have no way of knowing how much in fraudulent refunds made it through the system undetected.  The growth is a direct result of the increased dependence the IRS, and we all have, on the Internet. The Web has made it easier for honest people to file their tax returns -- the IRS has encouraged taxpayers to file electronically for years.  The Internet has also provided sources for crooks to find the information they need and avenues to file their own fake returns.

With more than 100 million income tax refunds to process each year, the IRS concedes it will never be able to quell such tax fraud completely.

“The IRS cannot stop all identity theft. However, we are committed to continuing to improve our programs,” Steven T. Miller, the deputy commissioner for services and enforcement at the IRS, said in written congressional testimony in November.

The agency has added new filters to screen for potential identity theft tax fraud and is working harder to help victims get their rightful refunds.  But many of the things that might flag a return as fraudulent -- such as a change in job, mailing address or name -- are legitimate.

So while one of the chief benefits of eFiling is supposed to be a faster refund, the added screening could mean delayed processing for some taxpayers.  The new IRS filters mean that more people’s tax refunds will get extra screening before they go out. “I think for the vast majority of taxpayers, they’re not going to see any difference,” he said. “There will be some people who end up having some delays.”


FROM THE IRS:

What is Identity Theft?

Identity theft occurs when someone uses an unsuspecting individual’s name, Social Security number, credit card number or other personal information without permission to commit fraud or other crimes. For example, a criminal can use someone else's information to run up bills on that person's credit card, empty that person’s bank account or take out a loan in that person’s name. And when it comes to taxes, a criminal with someone else’s personal information can file a fraudulent tax return and collect a refund.

Phishing is one tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. Phishing involves the use of phony e-mail or websites -- even social media. A scammer may pose as an institution such as the IRS. IRS impersonation schemes flourish during tax season. Spyware, which can be loaded onto an unsuspecting taxpayer’s computer by opening an e-mail attachment or clicking on a link, is another tool identity thieves use to steal personal information.

Identity theft is a major problem that affects many people each year. That's why it's important that taxpayers protect their personal information. Anyone who believes his or her personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit at 1-800-908-4490. A suspicious e-mail or an “IRS” web address that does not begin with http://www.irs.gov should be forwarded to the IRS at phishing@irs.gov.

Return Preparer Fraud

While most return preparers are professionals who provide honest and excellent service to their clients, some make basic errors or engage in fraud and other illegal activities.

Dishonest return preparers can cause big trouble for taxpayers who fall victim to their ploys. These fraudsters derive benefit by skimming a portion of their clients’ refunds, charging inflated fees for return preparation services and attracting new clients by making false promises. Taxpayers should choose carefully when hiring a tax preparer. Federal courts have issued hundreds of injunctions ordering individuals to cease preparing returns, and the Department of Justice has pending complaints against dozens of others.

To increase confidence in the tax system and improve compliance with the tax law, the IRS is implementing a number of requirements for paid tax preparers, including registration with the IRS and a preparer tax identification number (PTIN), as well as competency tests and ongoing continuing professional education.

The new regulations require paid tax preparers (including attorneys, CPAs, and enrolled agents) to apply for a Preparer Tax Identification Number (PTIN) before preparing any federal tax returns as of 2011.

Higher standards for the tax preparer community will result in greater compliance with tax laws, increase confidence in the tax system and ultimately lead to a better experience for taxpayers.

Filing False or Misleading Forms

IRS personnel are seeing various instances in which scam artists file false or misleading returns to claim refunds to which they are not entitled. In one variation of this scheme, a taxpayer seeks a refund by fabricating an information return and falsely claiming the corresponding amount as withholding. Phony information returns, such as a Form 1099 Original Issue Discount (OID), which claims false withholding credits, are usually used to legitimize erroneous refund claims. One version of the scheme is based on the bogus theory that the federal government maintains secret accounts for its citizens and that taxpayers can gain access to funds in those accounts by issuing 1099-OID forms to their creditors, including the IRS.

The IRS continues to see instances in which people file false or fraudulent tax returns to try to obtain improper tax refunds. The IRS takes refund fraud seriously, has programs to aggressively combat it and stops the vast majority of incorrect refunds.

Because scammers often use information from family or friends in filing false or fraudulent returns, beware of requests for such data. Don’t fall prey to people who encourage you to claim deductions or credits you are not entitled to or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

Frivolous Arguments

Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous legal positions that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or IRS guidance.

Nontaxable Social Security Benefits with Exaggerated Withholding Credit

The IRS has identified returns where taxpayers report nontaxable Social Security Benefits with excessive withholding. This tactic results in no income reported to the IRS on the tax return. Often both the withholding amount and the reported income are incorrect. Filings of this type of return may result in a $5,000 penalty.

How do you know if your tax records have been affected?

Usually, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund. Generally, the identity thief will use a stolen SSN to file a forged tax return and attempt to get a fraudulent refund early in the filing season. 

You may be unaware that this has happened until you file your return later in the filing season and discover that two returns have been filed using the same SSN. 

Be alert to possible identity theft if you receive an IRS notice or letter that states 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 you did not file a tax return, or 

IRS records indicate you received wages from an employer unknown to you. 


What to do if your tax records were affected by identity theft?

If you receive a notice from IRS, respond immediately. If you believe someone may have used your SSN fraudulently, please notify the IRS immediately by responding to the name and number printed on the notice or letter. You will need to fill out the IRS Identity Theft Affidavit, Form 14039

For victims of identity theft who have previously been in contact with the IRS and have not achieved a resolution, please contact the IRS Identity Protection Specialized Unit, toll-free, at 1-800-908-4490.

How can you protect your tax records? 
        
If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost/stolen purse or wallet, questionable credit card activity or credit report, etc., contact the IRS Identity Protection Specialized Unit at 1-800-908-4490.

How can you minimize the chance of becoming a victim?

    • Don’t carry your Social Security card or any document(s) with your SSN on it.

    • Don’t give a business your SSN just because they ask. Give it only when required.

    • Protect your financial information.

    • Check your credit report every 12 months.

    • Secure personal information in your home.

    • Protect your personal computers by using firewalls, anti-spam/virus software, update security patches, and change passwords for Internet accounts.

    • Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.

The IRS does not initiate contact with taxpayers by email or by phone to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS doesn't have that information unless you have already supplied it through personal contact. When you get contacted this way it is often referred to as "phishing."


What is phishing?


Phishing is a scam typically carried out by unsolicited email and/or websites that pose as legitimate sites and lure unsuspecting victims to provide personal and financial information.

All unsolicited email claiming to be from either the IRS or any other IRS-related components such as the Office of Professional Responsibility or EFTPS, should be reported to phishing@irs.gov.

However, if you have experienced monetary losses due to an IRS-related incident please file a complaint with the Federal Trade Commission through their Complaint Assistant to make that information available to investigators.


2017