The IRS is Cracking Down on Tax Identity Theft
February 6, 2012
Vanessa here from AllClear ID. Tax season is upon us, meaning not only do you have to deal with filling out your tax returns, you have to keep your information safe from identity thieves.
The Internal Revenue Service has admitted in the past that thieves have been able to file electronic tax returns using other people’s identities to get large refunds. The Treasury Inspector General for Tax Administration, which has oversight over the IRS, said last year that more than 580,000 taxpayers had been affected by identity theft.
One big reason why, according to a Miami Herald story: Scammers are exploiting a weakness in the IRS electronic filing system, because the agency does not match filers’ tax returns to W-2 income forms filed by employers until months after the filing season ends in April. That means the IRS is not scrutinizing fabricated documents before it issues refunds to thieves.
But the IRS is cracking down. On January 31, they announced the results of a massive national crackdown, arresting 105 people in 23 states for refund fraud and identity theft. They also visited 150 money-service businesses in nine locations nationwide to make sure they weren’t aiding and abetting these crimes, and is currently auditing 250 check-cashing operations. The high-risk areas identified by the IRS as hotbeds for redund fraud and tax-related identity theft are Atlanta, Birmingham, Ala., Chicago, Los Angeles, Miami, New York, Phoenix, Tampa and Washington, D.C.
The IRS also has new rules in place to combat identity theft. For a taxpayer who has been identified by the IRS as a previous victim of tax identity theft, a series of filters are now used to determine whether a return is legitimate. When the IRS receives a return for a past victim, that return is matched against these filters before automatic processing to help the IRS determine whether the return is valid or fraudulent.
Because the IRS now requires most 2011 tax returns to be filed electronically, a return will be kicked out of the normal IRS process if it fails to pass through any of the filters, and then manually reviewed and verified by IRS personnel before processing. This will cause a delay in the processing of the return, but better to make sure the right tax refund amount goes to the right person.
If you have been a victim of tax identity theft, you should have received a letter from the IRS giving you a six-digit Identity Protection PIN, an authenticator that must appear on your 2011 tax return. This safeguard means your tax return will be processed in a timely manner. If your return doesn’t have that PIN, your return gets rejected and you’ll have to file a paper return, meaning substantial delays in processing your return. If you and your spouse both receive the IP PIN letters, provide both sets; the IP PIN of the taxpayer whose name appears first on the return will be used.
The IRS just created a new section on its website dedicated to identity theft, including how to contact its Identity Protection Specialized Unit if you’ve come across tax-related identity theft.
To learn more about how to protect yourself & your taxes this season, check out our 4 Quick Tax Time Tips to Prevent Identity Theft, available as a free download on Facebook.