Susan Tompor: ID theft allows crooks to crank out fake tax returns for refund fraud

Detroit Free PressMarch 9, 2014 

  • how to avoid identity theft

    What to do about ID theft at tax time:

    ■ Taxpayers are advised to contact the Internal Revenue Service immediately, if they believe they are at risk of ID theft because of lost or stolen personal information. The IRS wants to take action to secure their tax account. Taxpayers can call the IRS identity theft toll-free line at 800-908-4490.

    ■ Taxpayers who receive a suspicious email can forward that email to the IRS at

    ■ The IRS has a list of tips relating to ID fraud at its website Tips include: don't carry your Social Security card or any documents that include your Social Security number. Don't give a business your Social Security number just because they ask. Give it only when required. Do not give a Social Security number to a caller who claims to be from the IRS. Be cautious about who prepares your taxes.

    SOURCE: Internal Revenue Service

Filing a tax return is stressful. But imagine being stopped from filing your federal income tax return because a con artist beat you to the punch and filed a fake return using your stolen ID.

In spite of a crackdown on the crime, stolen-identity refund fraud remains a top trouble spot this tax season.

In fact, tax fraud via identity theft once again topped the Internal Revenue Service's Dirty Dozen list of tax scams this year, after being No. 1 for the previous two years.

ID theft at tax time can take place when someone uses your name, Social Security number or other ID to create a fake return that generates a big refund.

Falsified returns have turned into such fast-money fraud that drug-dealing gangs reportedly have turned to churning out fake tax returns, too.

Crooks often file their cooked-up returns at the beginning of tax season before a legitimate taxpayer files.

The crooks take advantage of generous tax breaks — whether the real taxpayer would qualify for that particular tax break or not. Some refund fraud has involved misuse of credits, such as a first-time homebuyer credit; a telephone excise tax and education credits in past years.

The first clue some people get is when they try to electronically file their own 1040 form but their return is rejected by the system.

Other signs of tax-related ID theft: If you receive a letter from the IRS stating that you owe taxes for a year you did not file.

The crime can involve a complex layer for laundering refund money and making crooks harder to catch. One scheme in Tampa, Fla., ran from at least 2009 through September 2012, when the fraudsters were arrested, and later involved $2.2 million in restitution.

Someone's identity can be bought or stolen in one place but fake returns are later electronically filed from another location using a difficult-to-trace Wi-Fi connection, according to a U.S. Department of Justice report released last month.

Then the scammed tax refund checks can be cashed in yet another location or put on hard-to-track prepaid debit cards.

How do people get all those Social Security numbers?

In some cases, federal authorities report IDs are stolen from databases, such as a prison. One Louisiana woman operated "Angie's Tax Service" using IDs for nursing home patients. Maybe a wallet with a Social Security number in it is stolen. Or maybe a crook has a girlfriend in a medical office.

One woman worked for a debt collection company in Georgia and stole the identities of a number of individuals. Those IDs were later used by her son-in-law in Alabama to file fake returns and claim fraudulent refunds. The fraudsters were sentenced to prison last November.

Sometimes the taxpayer is tricked into giving away information.

George W. Smith IV, a certified public accountant and partner at George W. Smith in Southfield, Mich., had a client who was conned into giving confidential information to someone who claimed to be from the IRS but was not.

Another issue: It is unsettling to receive IRS notices out of the blue that don't seem to apply to anything you'd have filed.

IRS Commissioner John Koskinen said ID theft relating to tax returns ballooned into a growth industry for the criminally inclined around 2010.

"We're closing off as many avenues as we can," Koskinen said.

From 2008 through May 2012, the IRS identified more than 550,000 taxpayers whose identities were stolen for the purpose of claiming false refunds in their names.

Koskinen said the IRS has worked to reduce the days that it can take to resolve problems for victims, saying that it used to take around 300 days to resolve but now might take 135 days or so. Every case will vary.

Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at

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