NEW YORK (MainStreet) — Did you get a notice from the IRS that your tax return got bounced? You're not alone. Steven Weisman, proprietor of Scamicide and a professor at Bentley University, estimates that the IRS is going to pay out a whopping $5.2 billion in phony tax refunds this year. TurboTax shut down its state refunds completely out of fraud concerns. That's not just a loss to the taxpayer who has to jump through hoops to get his tax return. It impacts all of us. So how can you protect yourself against tax ID fraud?
How Tax ID Fraud Works
How does someone even get your tax refund? Weismann explains that the scammer files a false W-2 in your name.
"They don't want your return," Weismann says. "They want a refund in a much larger or significant amount." Scammers will have that refund sent to a prepaid card or an account they can access. They're effectively stealing your Social Security number to file a counterfeit return and take the proceeds to the bank. "The IRS sends it out to an account number, [and] they're not looking at whose account the name is on," Weisman says.
Phil Zaman, director of the National Tax Office with CBIZ MHM notes that scammers file early in the season, because most people don't file until later.
"The IRS generally assumes it's valid, though they do have some [detecting] algorithms now," Zaman says. Because the scammers file far in advance of when most actual taxpayers file, the taxpayers won't know until long after the file -- when they get a notice that the IRS has bounced their return. "If you file a paper return, it will take you about six weeks to file," he says.
Getting Your Money Back
Once you get a bounced return and verify your identity, the IRS is going to give you a PIN, making it harder for your to get scammed in the future. However, you won't get one of those until after you get scammed. And getting everything squared away is going to be a real chore, according to Weisman. "The victim often has to wait ten months to get their money back," he says. "Meanwhile their Social Security Number is out there." On average, a person's complaint is going to go to seven different desks, and 17% of the time, the IRS still doesn't get the refund back to the right person. "It's terribly inefficient," Weisman says.
So what do you do to make your life easier once you've been scammed? First, start by sending off your paper return with a form 14039, which is an affidavit of identity theft. Weisman also recommends that you get a copy of your police report and file that with the IRS. That simple act alone can shorten the process by a full two months.
More importantly, how can you protect yourself from becoming a victim of ID theft in the first place. The main thing, according to Weisman, is just protecting your Social Security number generally. That might be easier said than done. "You can be doing the best you can, but some place has it that isn't," Weisman says. "It can be work or school, but then they get hacked. The biggest use of hacked Social Security Numbers is tax ID fraud." Another way to protect yourself is to file as quickly as possible. Not only will you get your return back faster, you're going to beat the thieves to the punch.
Zaman notes that checking your credit report regularly can help you to catch ID theft before it becomes a tax issue. What's more, Zaman says that you shouldn't give your information out to anyone who calls you claiming to be from the IRS. "It's pretty effective to pretend to be the IRS, because you get people's attention," Zaman says. "You're far more likely to ignore something that comes from a bank or a credit card company. But unless it's a letter in the mail, it's probably not the IRS." Zaman says that the average time it takes to resolve a complaint is 279 days. He says people should contact the Federal Trade Commission as well as their local police department to file a report.`
"It's very frustrating that the General Accounting Office and the Treasury Inspector are making suggestions to the IRS and have been for years, but the IRS doesn't follow up," says Weisman. "I cut them a little slack, because their funding is always being slashed. But they could be doing a better job and the public needs to demand it."
--Written by Nicholas Pell for MainStreet