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Tax Question of the Week: Someone Filed a Tax Return in My Name and Received a Refund. Now What?

June 10, 2014

How to avoid the growing problem of tax identity theft.

Unfortunately, tax identity theft is a problem that affects its fair share of responsible taxpayers. Tax identity theft occurs when someone files a tax return in your name and, in turn, receives your refund. The IRS is actively conscious of this problem, and is working to eliminate it. In 2012, the IRS protected $6 billion more of fraudulent refunds than the previous year (20 billion compared to 14 billion).

Identity theft is an issue that plagues unsuspecting people all too frequently. Every swipe of a credit card and every social security number entry can thrust an unknowing person into the horror of identity theft. We want and expect to trust our IRS representatives but unfortunately knowledgeable scammers can disguise themselves as IRS agents and use the information you entrusted with them for illegal and undeserving means.

Fortunately there are ways to detect if there has been illegal activity regarding your tax identity.

  • If you receive an IRS notice or letter indicating that you filed more than one tax return, it could mean that a criminal used your identity to illegally file a tax return and was able to claim your refund. This usually happens early in the tax season so that the thief is able to claim a refund before the lawful taxpayer files his/her return.
  • In addition, if the IRS informs you that you have a balance due or they notice a counterbalance in your refund, this could point to tax identity theft as well.
  • If a collection action was taken against you for a year in which you did not file a tax return, and if the IRS history shows that you received a salary from an employer unfamiliar to you, you could be in the midst of tax fraud.

How Can this Happen?

Since tax returns require very sensitive, personal information, the hackers are not easily identified. In fact, if someone has filed a tax return in your name using your Social Security number, it could take months for the IRS to decide which return is legally recognized and which is counterfeit.

It is no wonder that so many people are victims of tax identity theft, and many are entirely surprised when it happens. One main cause of this problem is the way the IRS delivers refunds, according to an investigation by the Treasury Inspector General for Tax Administration (TIGTA). The TIGTA looked at 1.5 million cases of undetected fraud and of those, 1.2 million cases (82%) involved the issuance of directly deposited refunds, including refunds issued on debit cards.

TIGTA said that even though opening a bank account requires personal identification, “each method of obtaining a debit card requires a different level of verification in order to acquire a card.” A previous TIGTA investigation showed that the IRS was “not in compliance with direct deposit regulations that require tax refunds to be deposited to an account only in the name of the individual listed on the tax return.”

What Preventative Measures are Being Taken?

As a result of the recurring cases of identity fraud, the IRS is determined to prevent, detect, and resolve identity theft cases before they become severely damaging situations for the lawful victims. The IRS also has improved and accelerated its internal reviews to help spot false tax returns before tax refunds are issued and they have vowed to continue to assist victims of identity theft refund conspiracies.

If you believe your personal tax information has been stolen or have a question regarding your return or the protection of your information, contact a member of the KLR Tax Services Group.

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