The Growing Problem of Tax Refund Fraud

by Scott Sery on March 29, 2013

Tax fraudSince 2008 there has been a 650% increase in tax related identity theft cases.  Imagine going through the painstaking process of making sure you are counting up all your income, maximizing your deductions, double checking for errors only to get a response from the IRS stating that your claim has been denied because your taxes have already been filed.  As careful as many people are with their identity, they often become negligent around tax time leaving them wide open for criminals to swoop in and steal their return.

With something as complicated as tax returns you may think that it would be difficult to steal one’s identity and commit fraud.  Unfortunately it is not as complicated as you may think.

Stealing Your Social Security Number

We all know that we should keep our social security number locked down tightly.  Never give it out, shred documents that contain it, don’t carry your card with you: these are all things that we have known for years.  However, it is difficult to keep track of every piece of paper that shows your number.  The identity thief just needs to locate that number, figure out where you have worked, and submit a fake tax refund.  Your refund is loaded to a prepaid debit card for their use and you are left wondering why your return is being rejected.

Stealing Your Dependent’s Social Security Number

Often children are not as vigilant about keeping their personal information personal.  All the scam artist needs to do is snatch your child’s SSN and then claim them as their dependent.  They get the child credit, and your tax return gets rejected.

Claiming Your Social Security Number on Their W2

A less popular method of tax fraud is to steal your social security number, then find a job.  By claiming a “9” on their W2 they have no taxes withheld.  After a year of working, they suddenly vanish.  You do your taxes, and then receive a notice from the IRS saying you have unclaimed wages.  Of course the worker has long since left employment.

Unfortunately, as the popularity of electronic filing rises, so does the number of tax fraud cases.  And while the IRS is working hard to keep the fraud to a minimum, many people think they are not acting fast enough.  They are working to help the victims of the crime, but they need to be working to prevent the crime in the first place.

Steps You Can Take to Prevent Fraud

  • Keep your social security number well guarded.  This is a no-brainer, but you would be surprised how many people have their card in their wallet.
  • File your taxes early.  The sooner you get your taxes done, the less time criminals have to do them for you.
  • Watch your email.  The IRS will never contact you via email.
  • Make sure you have an antivirus and anti-malware program installed.  Many high-tech crooks steal your information through bugs on your computer.
  • Check your credit report.  You can get one free report from each of the three credit report unions per year.  Stagger them so every 4 months you are checking your credit report.

If you feel you have been a victim of fraud, you need to let the IRS know immediately.   Go to the IRS website and visit the ID fraud section or call them directly at (800) 908-4490.  The quicker you act, the more likely they are of catching the crook.  You can learn a lot more about your rights as a taxpayer by visiting the National Taxpayer Advocate Services website.

Have you ever been the victim of identity theft?  How will you prevent it in the future?

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Scott Sery

Scott Sery is a native to Billings, Montana. Within an hour in nearly any direction he can be found fishing, hunting, backpacking, caving, and rock or ice climbing. With an extensive knowledge of the finance and insurance world, Scott loves to write personal finance articles. When not talking money, he enjoys passing on his knowledge of the back country, or how to live sustainably. You can learn more about Scott on his website Sery Content Development
  • There is always a criminal out there thinking of ways to take other people’s hard earned money. This is just another example of how sad fraud has become.

  • The IRS is actually pretty useless if you’ve been a victim of identity theft, but not tax specific identity theft. They just say, “Oh, there’s nothing we can do” and don’t even put a note on your report or provide you with any way to prevent anything bad from happening. It’s ridiculous, really.

  • Brick By Brick Investing

    It’s a shame that someone can steal your identity using the information that the IRS mandates yet they provide no assistance when it happens and puts you on the hook. 60 minutes recently did a take on the whole credit bureau and how they significantly lack the ability to fight this trend and the ability to resolve identity theft.

  • Fortunately I haven’t become a victim of a fraud, but sometimes it is difficult to keep your number save. Many times you deal with companies requiring your SSN and then you are dealing with people collecting data from you. You never know what they may do with it. Sell it to a crook for example…

  • I have been a victim and I plan on monitoring my report very carefully, keeping fraud alerts active and I might freeze my credit report one day if it gets bad enough…

  • I had a credit card stolen once and the person immediately ran up a huge bill. I haven’t had my entire identity stolen. That would sicken me. I wonder if the person is off the hook for those taxes or are they forced to pay the wages of another person who stole their identity?

  • Any more it’s really hard to keep your SS number safe.

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