What You Need to Know About the Tax Fraud Surge in Electronic Filing

Dangers of Electronic Filing in Tax Season 2017

Taxes have become easier than ever to send in due to TurboTax and similar programs that claim to help first-timers file their returns like seasoned veterans.

 

But with the ease of electronic filing also comes a very real danger: Tax fraud. It’s not a new concept, but as with many areas of society, laws and regulations have yet to catch up with the schemes criminals are using to game the system.

Growing threat

With Americans relying more on credit cards and online shopping, identity fraud has quickly become the crime of choice for many thieves. Javelin Strategy and Research found that $112 billion has been stolen from consumers over just the past six years, but criminals aren’t just using that information to buy electronics or drain a bank account.

Instead, they’re going one step further by filing false tax returns. The previously arduous task is now easier than ever, making it a prime target to squeeze out a few thousand dollars from victims. According to U.S. News & World report, nearly 237,000 people went to file their taxes in 2015, only to find out someone else beat them to the punch. The Internal Revenue Service is getting a handle on the situation, though, as it stopped almost 787,000 bogus tax returns from seeking $4 billion in refunds.

As a measure to stop tax return fraud at the state level, many governing bodies are now requiring driver’s licenses to be recorded if a person want’s to e-file, according to Accounting Today. Some states have made this a mandatory measure, like New York and Ohio. Others, such as California and Wisconsin, don’t yet demand filers to give identification, but instead request it. It’s likely this will be a fast-moving trend adopted by the entire country at some point.

“Since last summer, the Federation of Tax Administrators, the IRS, and the tax preparation software industry have been working together to establish more robust security measures for the detection and prevention of refund fraud,” a statement from acting director of the New Jersey Division of Taxation, John Ficara, read. “These security measures include several new data elements, both required and optional, to be provided by the taxpayer when utilizing tax preparation software to complete and file income tax returns. Driver license information will be an optional data element when filing electronically this year.”

Were you defrauded of your tax return?

If you find yourself a victim of this crime, know that there are a few options you can take. First and foremost, though, U.S. News & World Report recommended taking back control of your finances. Alert your banking institution and the three federal credit agencies that your identity has been stolen, and go through any means necessary to restore full control over your identity. Remember, if they’ve filed a tax return in your name, they have your social security number.

If you’re lucky, you’ll receive notification from the IRS stating they found a fraudulent return in your name and declined it. If that happens, you’ll be free to file your return as you normally would after taking the aforementioned precautions to protect yourself against identity theft. But, the news source warned that the IRS budget is stretched thin, meaning there isn’t a lot of manpower tasked to catching tax return fraud.

After finding out your tax return has already been processed, you’ll want to fill out form 14039 and send it into the IRS agency. If you haven’t put a freeze on your bank account and alerted the banking institution and credit agencies, now is the time to do so. After that, U.S. News & World Report recommended filing a police report. You may also want to file a report with the Federal Trade Commission. The organization will be able to give you more advice on how to move further.

Once all that is done, consider meeting with a local tax attorney. Not only can they suggest reputable tax preparers to work with moving forward—in the off chance you were scammed by your former tax preparer if you hadn’t filed online—but they can help you assess the best course of action to take moving forward. No one is more experienced in the realm, and it’s certainly worth the money to receive counsel from those who have seen cases like yours countless times before.

Moving forward, you’ll be in the business of getting better prepared. It’s highly recommended you obtain a tax filing pin. This will ensure criminals can’t file your tax returns, but be wary—if you lose it, you won’t be able to file either.

Are you considering an electronic filing? Do you have any questions? Would you like to discuss the matter further? If so, please contact me, Jeffrey Pittard, at 201-806-3364.

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Jeffrey R. “Jeff” Pittard devotes his practice to all areas of estate and wealth preservation and tax planning for high net worth individuals.

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