Tax refund time is that one special time during the year, after suffering through the arduous task of paying taxes, where we as tax payers get to reverse the roles and have Uncle Sam send us money for a change.  A refund gives a great feeling of liberation and relief when you observe that extra boost of income in your account.  A refund check has become anticipated income that many expect to have available, and without which, many people could not pay unexpected expenses or begin the process of catching up on bills and car payments.  

Although, a refund check comes as great news to most, there are an increasing number of people who are being targeted by scammers for identify theft and tax refund fraud.  Criminals have begun stealing taxpayers’ social security numbers and other sensitive information, filing false claims, and running off with that taxpayer’s hard earned refund check.

Refund checks have become an easily accessible tool for criminals.  Generally, a refund scammer will procure a taxpayer’s social security number, file a false tax return early in the year (before the actual tax payer has the ability to file their true return), and then the scammer will claim the fraudulent refund.  Although the tax refund is not coming directly out of the bank accounts and hands of the taxpayer, the taxpayer is not only harmed because their identity has been stolen but also because they cannot claim their own refund.  When the taxpayer files his or her own tax return for the year and claims his or her refund, the taxpayer is flagged by the IRS, and the refund check is withheld.  Because they act so early, many times the scammer is able to complete the crime and cash the refund check before the taxpayer has ever discovered the scam. 

When the taxpayer eventually discovers this scam, the scammer is long gone and the taxpayer is stranded on the long path of proving to the IRS that they are the actual taxpayer and have been the victim of a tax refund scam.  This process is not only frustrating, but coupled with other consequences of having a stolen identity, this process can take substantial time and costs from the taxpayer.  

How do I know if I am the victim of a tax refund scam?

A common way that people learn that they are victims of these scams is when they file their actual tax return and claim a refund, and the IRS sends a letter denying their refund indicating that multiple tax returns have been filed under their name.  

Sometimes, the IRS will contact the taxpayer asking for more information about a tax return that the taxpayer never filed.  If you receive any communications from the IRS about tax returns you did not personally file, or the IRS paperwork does not accurately reflect your information, it is important to contact the IRS so that your interests can be protected.  It is also important to scrutinize any notices that you receive from the IRS and respond promptly. 

What happens next?

If you have discovered that you are the victim of a refund scam contact the IRS and your bank to ensure that you can protect your interests.  Then you will have to file IRS Form 14039 “Identity Theft Affidavit” with the IRS to prove that you have been scammed.  This process will delay the IRS from sending any refund check to you.  The delay in the refund can be a large problem for those who are relying on a refund check to stay current on their bills or to even meet those daily expenses that seem to spring out of nowhere.  It is a frustrating and difficult process that no one should go through, but alas, more Americans do each and every year. 

Is there help on the way?

The good news is that the IRS is getting better and more sophisticated in catching these scammers.  In an IRS press release the IRS indicated that it has prevented more than $63 billion from theft by fraudulent refund checks. The IRS also boasts that it has investigated 1,063 tax return fraud and identity theft investigations with 748 criminal sentencings in the 2014 fiscal year – a 75% increase since 2013.  The IRS seems to understand how big of a problem these refund scams are and has acknowledged that these refund scams are posing a large problem to taxpayers.  

To fight these scams, the IRS has created a PIN number system which is assigned to individual taxpayers as an extra password to make taxpayer accounts more secure.  But, this verification PIN number is only assigned to those people who have already been victims of identity theft or who are flagged as high risk victims – it does not help future victims who have not had problems before.  The IRS has also begun to scrutinize tax returns and refund check distributions much more strictly by flagging cases where refund distributions are made to an individual bank account.  

Some Preventative Measures:

For taxpayers, one of the best ways to prevent a scammer from stealing your refund is to keep your personal information - such as your social security number - safe and secure.  Make sure you trust the person compiling your tax return and refund claim, and always be cognizant of those to whom you give any personal information.  It is also important to properly destroy sensitive information. Do NOT simply throw it in the trash… shred it!  Lastly, always read and respond to all notices sent by the IRS.  And, of course, contact a professional if necessary. 

Remember, “An ounce of prevention is worth a pound of cure…” or a nice refund check! 

Published by Davis W. Puryear on December 8, 2015