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Identity Theft's Taxing New Trend: Scammers Are After Your Tax Refund

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identity theft tax refund scammersAlong with the rapid rise in identity theft has come the explosion of a specialized and sophisticated form of theft: tax identity theft.

During the 2011 tax processing year, roughly 940,000 tax returns were filed fraudulently. This year the number will likely reach 1 million. Even the IRS' own taxpayer advocate, Nina Olson, says the IRS is woefully incapable of handling the boom.

A recently released report from the National Taxpayer Advocate to Congress says that the IRS "has failed to provide effective and timely assistance to victims of identity theft" even as the number of crimes continues to soar. Olson says in the report that tax-related identity theft has risen some 650 percent since 2008.

Scott Mitic, the CEO of TrustedID, says that tax identity theft has grown so rapidly it's caught many people off guard.

"Identity theft is a crime that's anonymous in many cases, but in the case of tax identity theft, the government doesn't have in place the level of protection that many other financial institutions do to prevent fraud," Mitic says. "At this moment, the IRS is one of the weakest links in the financial services world and as a result is highly targeted."

The IRS allows filing of taxes as early as Jan. 19, and prompt thieves will file immediately with the hopes of beating more cautious individuals to their own returns.

Rebate? What Rebate?

Far more advanced than simply intersecting a rebate check or prepaid card, these thieves are stealing year-end statements, W-2s and other income information to file returns on victims' behalf. Americans can legitimately receive their refunds in a variety of ways: direct deposit (often the fastest), loaded onto a prepaid card, or via check mailed to a location of their choosing. Mitic says thieves will often choose prepaid cards.

"Prepaid cards are a source of significant amounts of fraud. If you use tax filing assistant like HR Block or Turbo Tax you could get a refund on a prepaid card," Mitic says. "They're beautiful from a tax ID theft perspective because they're just like cash."

How to Protect Yourself

For the most part, the identity theft methods that we must guard against during tax season are the same ones the criminals use during the rest of the year, and taking your precautionary tactics seriously is the only way to keep your information safe.
  • Shred any paperwork not needed for tax preparation.
  • Be wary of a slow-running computer or out-of-place pop-ups when filing taxes online.
  • Be suspicious of any phone calls or emails claiming to be from the IRS, even with the appropriate logos. According to the IRS website: "The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels."
  • Don't put your return in your office mailbox or in outgoing mail bin at work. "When filing taxes by paper, take them directly to the post office and put them right into a postal worker's hands," Mitic says. "Tax returns are usually pretty obvious, and can easily be snatched."
Bob Meighan, vice president of Turbo Tax, agrees that an ounce of prevention is often worth a pound of cure. "If you take precautions up front, you mitigate the chance that you'll be a victim of tax identity theft," he says. And, he points out, filing online is safer than using a paper return. "We take security and verification very seriously," he says. "All of our customers use passwords to access their accounts, transmissions between our customers and the IRS are all sent on encrypted, secure lines, and we encourage our customers to use common sense practices when filing taxes, and year-round."

Finally, don't get complacent: Odds are you will file your tax returns without incident this year, but tax ID theft is a growing trend. The best way to avoid being a victim this year, and in future tax seasons, is to remain vigilant.

Taxpayers who suspect they've been victims of identity fraud should call the IRS Identity Theft department at 800-908-4490 with a copy of a police report, the completed IRS affidavit (Form 14039 (link opens PDF)), and state-issued identification. You'll find more information in the Taxpayer Guide to Identity Theft on the IRS website.

Motley Fool contributor Molly McCluskey (@MollyEMcCluskey) owns shares of Intuit, which makes Turbo Tax. The Motley Fool recommends Intuit and owns shares of Intuit.


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Joanne

The IRS has a lot they need to be doing that they are not doing. First they need to slow down and scrutinize tax returns more. Compare them to previous tax returns. Verify who the SS# belongs to. If paper returns are filed, verify the signature to past returns. When you read that two prison inmates collected over $2 million dollars in fraudulant tax returns then there is a VERY BIG problem with our IRS. The article states they expect almost a million fruadulant tax returns. I say to the IRS - slow down and be sure you are issuing that tax refund to the right person. I can wait two or three months to get my tax return. I think the IRS needs to become very vigilant in scrutinizing tax returns. For those who feel they can't wait to get that return, then think about what might happen if your identify is stolen. Then you will wait a very long time until you are proven innocen and get your tax refund.

February 08 2013 at 5:40 PM Report abuse rate up rate down Reply
ragtopdaz

If caught send them to this country..

An Islamic court in Somalia on Thursday cut off a hand and foot from each of four men convicted of stealing phones and guns, drawing hundreds of onlookers as the weeping men were punished at a military camp.


The Shariah court that carried out the sentences is run by the powerful insurgent group al-Shabab, which is trying to topple Somalia's U.N.-backed government and install a strict form of Islam.

February 08 2013 at 2:41 PM Report abuse +1 rate up rate down Reply
sstuczynsk

The IRS must build more sfegards into their processing system. Anyone caught doing fradulent returns must spend a minimum of 10 years in jil. The government must crack down on these people. They are usually stealing from the poor who rely on these tax returns.

February 08 2013 at 12:41 PM Report abuse rate up rate down Reply
Wealth Builder

We have to start giving more harsh penalties for the crime of ID theft. Currently people get a slap on the wrist while the person's whose identity was stolen has a long, hard road to prove that indeed their ID was stolen. This is backwards. People who steal other's identity's should be unable to get a good night's rest knowing that they will be caught and the punishment will land them in prison for a very long time.

February 01 2013 at 9:39 AM Report abuse +5 rate up rate down Reply
medal819

Here is one way to deal with identity theft . Instant death when caught. But the liberal will scream about the criminals rights.

January 29 2013 at 10:01 AM Report abuse +3 rate up rate down Reply
1 reply to medal819's comment
Wealth Builder

Considering we rarely put people to death for actually killing another human being that makes your comment clueless or stupid...you decide which. And that is not a "liberal" thing. We have laws remember.

February 01 2013 at 9:41 AM Report abuse -1 rate up rate down Reply
granthamplaster1

The SC DOR computer's were hacked and tax returns, banking info, social security numbers, etc. dating all the way back to 1998. Had to close my bank acct. (which was BOA-no hardship though- HATED this bank and their unscupulous practices).

January 28 2013 at 3:23 PM Report abuse +2 rate up rate down Reply
Peg

Our 2011 return was stolen a month before we even filed. After much investigation, (and runaround) we finally got our check in the mail this past Saturday. The IRS better go back to good old snail mail until they can figure out how to safely work with computers and prepaid bank cards that go to anonymouis thieves.

January 28 2013 at 11:36 AM Report abuse +1 rate up rate down Reply
dancerprnc

WTH would anybody publish how to break into a tax account?? I know that their are random ways of doing this, but to publish it?/ This is VERY irresponsible!!!

January 27 2013 at 10:40 PM Report abuse +1 rate up rate down Reply
1 reply to dancerprnc's comment
Wealth Builder

Actually it is not a secret.

February 01 2013 at 9:42 AM Report abuse +2 rate up rate down Reply
barbosa-joaquim-r

live by sword die by the sword

January 27 2013 at 9:56 PM Report abuse +1 rate up rate down Reply
fran

I guess this means it's a good thing that my credit rating tanked and my finances are in the toilet...there's no incentive for anyone to steal my identity because it wouldn't do them any good. Who knew there was a benefit to being long-term unemployed and broke?

January 27 2013 at 9:09 PM Report abuse +2 rate up rate down Reply
1 reply to fran's comment
riverrunnerx2c

That's what I have been saying for years thanks Rip off student loan threw fly by night school and commie DFS bureaucratic Mess child support system that made it look like I owed twice what I really did.
Thanks to all the JACK ASSES that created a Situation that has ruined my credit and the Credit of the USA Hope you choke on the caviar.... in your aging years, and you know who you are!!!!!!!!!!!!

January 27 2013 at 9:30 PM Report abuse +2 rate up rate down Reply