Protecting Against Income Tax Refund Fraud

February 21, 2019

Income tax fraud does not discriminate among the rich and poor, young and old or blue and white collar worker. Many think it can’t possibly happen to them, but chances are—it has already happened to someone you know. How do you keep it from happening to you?

 First, let’s take a look at exactly what this fraud is and how it happens. In simple terms, the fraud occurs when someone has used our personal information (including name and Social Security number) to file a fraudulent income tax return for the purpose of securing an income tax refund.

 Here’s how it happens: the fraudster prepares and attaches a fake W-2, which reflects a material amount of federal or state withholding. The fraudulent return is filed manually or electronically.

 Fraudulent income tax returns are usually filed very early in the calendar year, well before the legitimate income tax return is even a consideration. Unfortunately, this is easy to do because the income tax authority’s reaction time usually takes months. Remember, the new customer-friendly IRS wants to return the refund back to the taxpayer as soon as possible—and typically before comparing the attached W-2 to any W-2 submitted by the lawful employer.

 Consider this: W-2s can be filed with the Social Security Administration as late as March 31. The SSA has to forward them to the IRS for processing and input and that can take months! While all of this is occurring, income tax returns are being filed and income tax refunds processed.

 What Can I Do?

 First, file your income tax returns as soon as possible. According to the American Institute of Certified Fraud Examiners, the IRS paid out $5.2B of fraudulent refunds involving identity theft last year. While that seems like a lot, and it is, the IRS stopped $24.2B in fraudulent income tax refunds resulting from identity theft. While this type of fraud has been around since 2008, the scam has tripled in the past three years.

 When a criminal has an individual’s personal information, that person is ripe for financial crimes extending well beyond income tax refund fraud. And that can be the beginning of a nightmare. You must be vigilant; and we can help.

MarksNelson can provide you with the steps you should take to protect your identity and minimize any potential for income tax return fraud. Contact your MarksNelson professional at 816-743-7700.

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