Tax return fraud

[AnIntentionalRoad]

In late March I received a letter from the IRS saying that my 2013 return had been reviewed and I was due an adjustment of 15k. Weird. Esp because the AGI and other numbers it listed in the letter were an order of magnitude lower than my actual numbers (I had a big cash payout last year). It said I didn't have to do anything unless I disagreed with the numbers and I would get a check in 4-6 weeks.

Hey, if the IRS wants to send me a check, I wasn't going to go to any trouble to prove to them that they shouldn't.

Then about 2 weeks later I got another letter from the IRS. It said that my 2013 refund was on hold while they investigated my return.

The really odd thing about this all is that I had not filed my 2013 return yet! (In fact, I still haven't because I filed an extension.)

I finally realized I wasn't going to get my free 15k so I called the IRS about the issue and they said they believe someone fraudulently filed a return under my SSN with the intention of getting a quick direct deposit return and then disappearing. The IRS guy said this type of fraud is rampant now that everything goes through DD.

This is my second case of identity theft. The first involved a group that opened a new credit card in my name with my bank and had it sent to a mule in Kentucky. The bank said it was an eastern European gang.

Sad that this is becoming the new norm.

 

[youbet]

This type of fraud has been widely discussed in the media lately.

You made a mistake in thinking you'd just let the IRS send you money you knew wasn't yours. That red flag should have pushed you to action immediately.

 

[MichaelB]

Sorry to hear of this, and +1@youbet. Have you notified the credit rating agencies yet? You need to lock down your accounts immediately.

 

[dixonge]

Happened to me in 2010. PITA but nothing ever happened to anything else. Still waiting on my danged refund though...

 

[pb4uski]

....Still waiting on my danged refund though...

Hindsight is 20/20, but this fraud thing is a very good reason for being careful in monitoring your obligation, withholdings and estimated payments so you don't have a big refund due.

 

[utrecht]

A friend of mine had the same thing happen last month. He got a refund check for $8000 and couldnt figure out why. He thought it was some type of fake IRS check for some scam and threw it in a drawer. Then he did his taxes and when he e-filed it got rejected because he had already filed (or someone did for him). Thats when he realized the $8000 check was real. When he called the IRS they said that someone had filed his taxes and had planned to have the refund direct deposited. It wouldve worked except the scammer missed one digit on the account number that the money was supposed to be direct deposited into. There was no such account so they mailed a check to the address listed on the return which was my friend's real address. If the scammer had entered his correct account number he wouldve gotten the money.

 

[dixonge]

Hindsight is 20/20, but this fraud thing is a very good reason for being careful in monitoring your obligation, withholdings and estimated payments so you don't have a big refund due.

That's good general advice. It wouldn't have helped me since I was doing option spreads in 2010 and had to use a CPA. And now I don't have anything to withhold anything from, although I *am* finally experiencing the joys of estimated payments.

 

[dixonge]

A friend of mine had the same thing happen last month. He got a refund check for $8000 and couldnt figure out why. He thought it was some type of fake IRS check for some scam and threw it in a drawer. Then he did his taxes and when he e-filed it got rejected because he had already filed (or someone did for him). Thats when he realized the $8000 check was real. When he called the IRS they said that someone had filed his taxes and had planned to have the refund direct deposited. It wouldve worked except the scammer missed one digit on the account number that the money was supposed to be direct deposited into. There was no such account so they mailed a check to the address listed on the return which was my friend's real address. If the scammer had entered his correct account number he wouldve gotten the money.

Someone is kicking themselves for that one! LOL

Here is what I learned from my incident.

FILE EARLY!!!

These scammers file as soon as possible each year so they have a better chance of getting the money and clearing out before the real person files. All they really have to have is your name and birth date and social security #. And as broken as our IRS system is, I'm not even sure they need to have all of those things accurate!

My scammer filed out of Utah, where I've never lived. Had I filed first, the fraudulent claim would have triggered the alert. As it was, since I filed 2nd, *I* was the one who got the alert and had to prove my identity. So file early...

 

[pb4uski]

But... let's say I have $8,000 withheld for the year and a fraudster files a fraudulent return and get $8,000. Later, I do my return and it show I owe $10.

As I understand it, once it is all sorted out, the IRS absorbs the $8,000 hit.

The issue is the hassle of getting it all sorted out not a monetary hit to the taxpayer. Right?

 

[travelover]

I'm curious as to why the IRS can't spot this fraud. Anecdotally, I hear of a single address getting a hundred refund checks sent to it.

Any fraud busters have some insight?

 

[dixonge]

But... let's say I have $8,000 withheld for the year and a fraudster files a fraudulent return and get $8,000. Later, I do my return and it show I owe $10.

As I understand it, once it is all sorted out, the IRS absorbs the $8,000 hit.

The issue is the hassle of getting it all sorted out not a monetary hit to the taxpayer. Right?

This is correct. In my case my actual refund was for $610, the fraudulent filing netted someone almost $9,000. The IRS has a fraud department to handle that. I'm not particularly confident that they will catch these people.

 

[dixonge]

I'm curious as to why the IRS can't spot this fraud. Anecdotally, I hear of a single address getting a hundred refund checks sent to it.

Any fraud busters have some insight?

Looks like they were taken for around $4 BILLION last year. Says they filed charges against 880 people, about half of the 1500 fraud cases opened in 2013.

Billions in fraudulent tax refunds continue to plague IRS | New York Post

 

[pb4uski]

Usually in order for a bank account to receive funds, the account must be in the name of the payee (just like that you can't deposit someone else's check in your bank account).

Are these fraudsters also setting up bank accounts in the taxpayer's name? I suspect not in which case the problem could be solved by only allowing DD to accounts where the taxpayer is named on the bank account.

 

[dixonge]

Usually in order for a bank account to receive funds, the account must be in the name of the payee (just like that you can't deposit someone else's check in your bank account).

Are these fraudsters also setting up bank accounts in the taxpayer's name? I suspect not in which case the problem could be solved by only allowing DD to accounts where the taxpayer is named on the bank account.

I hadn't thought about that part. They might have had a paper check sent, which they could cash. Probably easier, but who knows? If they had my name and Social, they could have made a fake ID... *shrug*

 

[RockyMtn]

Same problem with my GF's return this year. E Filed and was rejected, E Filed again and rejected. Called IRS and someone had already filed under her name and SS #. She worked at a company two years ago and all of the employment records were hacked. Names, SS #'s etc. She had filed early that year so we beat them to it. This year we had to wait on a few forms and they got there first.

Have to deal with IRS, file a police report, FTC Fraud, etc, etc. What a pain.

 

[trueblue]

Went through this, too, a couple of years ago. I e-filed in February, and someone filed a fraudulent paper 1040EZ while my refund was processing, which froze everything up. Took until November to clear. In my case, the fraudsters had an old address (about ten years old) and my name and social. I suspect compromised payroll records from an old job.

One interesting quirk was that I was buying a house while my tax return was held up, so when the underwriters requested my tax transcripts, they got the "wrong return" which didn't match my W-2. There is a newer version of the transcript form with an identity theft checkbox that returns "all" returns for a year to the requester. But the lender had a hard time dealing with the inconsistency, and it created a ton of drama.

 

[ERD50]

Question on this. I guess it's been so long since I paper filed and/or got a refund that I don't recall how the IRS handles this. But I don't recall getting a letter that I would get a refund in 4-6 weeks. I thought the check just came (usually pretty quickly after I filed)? Or maybe because of the amount?

I agree with others - it should have been a red flag immediately that they wanted to give you more money than you were expecting. I recently read a 'leader-ship' style book, and one of the tips in there was:

Always accept and investigate/act on bad news immediately, always question good news.
​

Scammers often count on people 'wanting to believe' good news (you have won our lottery... a Nigerian Prince needs your help....). Be skeptical, or you will continue to be a target.

 

[Lsbcal]

Same problem with my GF's return this year. E Filed and was rejected, E Filed again and rejected. Called IRS and someone had already filed under her name and SS #. She worked at a company two years ago and all of the employment records were hacked. Names, SS #'s etc. She had filed early that year so we beat them to it. This year we had to wait on a few forms and they got there first.

Have to deal with IRS, file a police report, FTC Fraud, etc, etc. What a pain.

In such a repeat case, couldn't you file a quick early return and then file an amended return when the full paperwork is ready? Just a thought.

 

[Rustward]

If it sounds too good to be true . . .

 

[haha]

Hindsight is 20/20, but this fraud thing is a very good reason for being careful in monitoring your obligation, withholdings and estimated payments so you don't have a big refund due.

I don't see how this would end the problem. The scammers file false returns showing a big refund. So your los might be less, but it wold still happen.

For retired people a surefire way should be to make no estimated payments or carryovers, and just pay the penalties at filing time.

Ha

 

[ERD50]

I don't see how this would end the problem. The scammers file false returns showing a big refund. So your los might be less, but it wold still happen.

For retired people a surefire way should be to make no estimated payments or carryovers, and just pay the penalties at filing time.

Ha

I guess it depends on how much info they falsified? Maybe they claim to have had some large $ withheld?

When I've got a refund, it seemed to come shortly after I filed - I really don't think they had time to double check anything, even the straightforward electronic checking.

Twice in my life I've had a 'paper audit' (I think that is what they are called) - just a request for info, and a bill for the difference if I didn't supply the info. One time was clearly my fault, I stupidly forgot to include my Sched A paper copy, so they just denied all my deductions. But I got the refund (or maybe I was due that year, can't recall), the checking didn't occur for many months afterward. I submitted the paperwork, and that was the end of it.

The other time was some kind of glitch in the e-file, or possibly operator error on my part (can't imagine where, I kept pdfs of everything). They had a zero where I clearly had an entry on my pdf copies. But again, it was many months before they noted this. I just gave them the number I wanted to be there (had to fax it, ughhhh!), they accepted it, and all was OK.

So I'm guessing you could enter just about anything, maybe even list estimated payments or a withholding that doesn't match the W2, and they would not catch it until much later.

Filing early and amending might help - but will the crooks just start running fake amendments?

-ERD50

 

[pb4uski]

I don't see how this would end the problem. The scammers file false returns showing a big refund. So your los might be less, but it wold still happen.

For retired people a surefire way should be to make no estimated payments or carryovers, and just pay the penalties at filing time.

Ha

It probably doesn't end the problem as long as the IRS absorbs any fraud losses.

But your approach probably doesn't solve it either. In both cases the fraudster has no idea what has been withheld/estimated payments and just makes a number up, knowing that the IRS doesn't check them before issuing refunds. One simple thing the IRS could to is to validate the total withholdings and/or estimated payments before issuing a refund check since a fraudster would not likely have this information.

If the fraudster has name, TIN and an address they can file a fraudulent return I suppose.

The best way to avoid the problem would be to file early.

 

[Chuckanut]

Even if the IRS absorbs the loss and the taxpayer is made whole, the problem remains that these bad guys have accumulated enough data on their victim to do a lot of damage in other areas. A credit freeze is called for ASAP to prevent further damage.

 

[Alan]

Before reading the news articles this year on this fraud I had always assumed that when you filed a return that the IRS computers would cross-check your return with your W-2's, 1099's, est tax payments etc. At the very least it seems very easy for the IRS computers to have taxes paid throughout the tax year registered to your SS or TIN so that at a very minimum if your return states a different amount of taxes paid that should raise a big red flag.

Obviously more complicated than I thought.

 

[Lsbcal]

...
Filing early and amending might help - but will the crooks just start running fake amendments?

-ERD50

I think this would be assuming too much capability on the part of the crooks.

I wonder why the IRS cannot detect a lot of this fraud. First they would only check on returns that had money coming back. Second they would check against some sort of fingerprint of the last year's return like income sources, deductions, etc . Most people have a fair amount of similarity in their returns year to year.