Tax identity fraud is on the rise

This is a guest article written by David Balaban. The author’s views are entirely his own and may not reflect the views of IT Governance.

Billions of dollars are thrown away annually through phony tax returns. It’s a cyber crime that is continuously growing.

Actually, it’s not difficult for a criminal to swipe your tax refund. Here’s what the story of a victim of tax identity theft looks like: You want to file your taxes; you contact the IRS to consult, but the IRS rep says, “You’ve recently filed a tax return, and you’ve already been paid.”

This is a very common situation and plenty of people get their money stolen. Numerous Social Security numbers are stolen every year and are being obtained by criminals from a range of places. One example is the Anthem health care data breach in which 80 million SS numbers were taken. Regrettably, experts say this wrongdoing is going to get more common.

Dark market

Criminals buy Social Security numbers on the dark market and then file returns with those Social Security numbers, names, and dates of birth. Criminals use falsified W-2 numbers that indicate they need a refund. A criminal would typically claim something like a $2,600 or $2,700 refund in somebody else’s name, and the IRS pays out. Criminals do this many times – 12, 15 times a day. And the way that the IRS system is set up, a refund will come to whatever address criminals put on there. After that, if you file with your Social Security number and someone has previously done this on your behalf, you won’t receive a refund.

Additional security factors

IRS is implementing additional security factors like a six-digit PIN code, but it’s currently only working in Georgia, DC, and Florida. The IRS hopes to implement it nationwide, but it’s dealing with massive budget reductions. The IRS has been improving its detection capability, so it’s likely that a large proportion of the returns that criminals file don’t get paid. And criminals are now going after state tax returns as well.

The IRS stops about $20 billion worth of false tax refunds every year, but crooks still managed to get about $5 billion in 2011 alone. Computer filing is not broken – it’s working well in other areas – it’s the security procedures within the IRS that should be improved. Most victims can get their money eventually, but need to wait months and months to have anything settled with the IRS.

Here are several helpful tax fraud prevention tips:

  • To lower the risk to falling victim, file taxes as early as you can so the IRS can process them before thieves can put their hands on your money.
  • A lot of organizations are asking for your SS numbers these days. Just tell them: “No.” There are some situations where an organization, a business that you’re working with, or a customer, has a legitimate need for your Social Security number, but many times they don’t. For example, in health care, your medical provider may give you a medical identification number which is different from your Social Security number, so you don’t need to share your SS number anytime you are talking to the health people. Say “No” – that cuts down on the number of companies that have it.
  • Take care of your wallet and don’t lose it if you carry your Social Security card in it.
  • You can get a transcript of all your transactions with the IRS from them. It will help you find out if there has been worrisome activity. You may also want to monitor your bank accounts. You can get a little notification right on your cell phone, and you know right then and there.
  • You can take advantage of an ACH debit block. It’s one of the ways to stop check transactions taking place, to stop it coming out of your account. It’s more applicable to small businesses but is also very helpful against another variation of this fraud, in which criminals go after your estimated taxes.

As a company, if you’ve got Social Security numbers in your system, make sure that they are well protected by passwords and let employees know that it’s a criminal offense to give that out inappropriately.

We also need to lobby for change: let our lawmakers know how important it is. Our government keeps cutting the budget of the IRS. The population is growing, we have more and more taxes, at the same time we are giving IRS less and less money to audit and protect this information. Nobody loves the IRS, but you need to allocate enough money to put protections in place to stop a lot of bad stuff.


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