LINKEDIN 1 COMMENTMORE

Milwaukee — April 15 is still a ways away, but a growing number of Americans may be surprised to learn that someone has already filed their tax returns for them — and also made off with their tax refunds.

Taxpayers as well as state and federal tax collection agencies are facing the problem with alarming frequency.

“It is a massive problem,” said Brian Krebs, an investigative reporter who runs a globally watched cybersecurity website. “It’s probably going to emerge as the biggest identity theft problem this year.”

The problem is now so widespread it has been given its own federal government acronym: SIRF, for Stolen Identity Refund Fraud.

“It’s definitely a growing problem,” said Neil Keller, who runs the national tax services practice of Chicago-based Sikich LLP. “Even a few years ago, we didn’t see it impact our client base at all. But within the past few years, we’ve definitely seen an uptick.”

Putting a number on the size of refund theft nationwide is tough.

The Internal Revenue Service says it stopped 14.6 million suspicious returns from 2011 through November 2013, preventing more than $50 billion in fraudulent refunds.

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

The IRS has more than 3,000 people dedicated to handling fraudulent tax filings.

In fiscal 2013, the agency initiated 1,492 criminal investigations related to ID theft, an increase of 66 percent from 2012.

Determining how many state and federal refunds were fraudulently obtained across all 50 states is almost impossible to calculate.

But the problem is widespread enough that TurboTax, the country’s most popular do-it-yourself tax preparation software, briefly stopped processing state tax returns this month because of an increase in attempts to file bogus tax returns and steal refunds.

In Wisconsin, the Department of Revenue has added anti-fraud measures as a result of what is happening elsewhere in the nation, even though the state hasn’t yet seen the upswing in tax-refund thefts that some others have reported, said Stephanie Marquis, a department spokeswoman.

The state isn’t disclosing exactly what those measures are, for obvious reasons.

Breaches in which Social Security numbers are compromised are behind the increase in tax-refund fraud.

Criminals have used Social Security numbers stolen from hospitals, nursing homes and public death lists, “exploiting some of the most vulnerable members of our communities — the elderly, the infirm, grieving families,” the IRS says.

But the victimization isn’t limited to any particular group.

“The people who are in the business of perpetrating this kind of fraud collect Social Security numbers all over the place,” said Cindy Hockenberry, manager of research for the National Association of Tax Professionals, a trade group.

“Until they figure out a way to make Social Security numbers ironclad, airtight and inaccessible by anybody, we’re going to see this kind of thing,” Hockenberry said.

Krebs, whose site broke the news of the Target credit card breach in 2013 and who is considered an expert in identity theft prevention, said he was the victim of a fraudulent tax return filing last year.

His work makes him a target, he said. Still, the experience was unpleasant.

When he filed his tax return, “The IRS came back and said, ‘You’ve already filed.’ And I said, ‘How about that?’

Complicating tax-refund fraud is that, by the time taxpayers learn they’ve been ripped off, the fraudsters and the refunds are long gone.

The targets usually are individual taxpayers rather than businesses or corporations, Keller said.

Criminals tend to have “tax return filing parties early in the year, where they file all these fraudulent tax returns in the hopes of getting those in before the actual taxpayer files their tax return,” Keller said.

“They are filing so early in the year that most taxpayers couldn’t even file their tax return if they wanted to,” because it takes time to receive and gather the necessary paperwork, such as payroll earnings statements or mortgage interest payment records.

“It’s a surprise to the taxpayer when they go to electronically file their tax return and it’s rejected because a return had already been filed,” Keller said.

The fraudulent tax returns tend to report very low income amounts “in hopes that whatever you paid in is available for them to steal,” Keller said.

But fraudsters aren’t using your identity simply to steal your tax refund.

Some taxpayers do a good job of matching the amount of tax they have withheld each year with what they actually owe.

Others end up without a refund and have to pay taxes each year.

“People forget we are talking about fraudsters,” Krebs said. “These people, they lie. That’s what they do for a living. It doesn’t matter if you’re owed a refund or not. They are going to file in your name and create all kinds of problems for you.”

A fraudster, for example, could file a return in your name and claim thousands of dollars in refundable tax credits — refunds for a portion of the money you spent on child care or higher education, for instance.

They’re a growing part of the U.S. tax system, especially as pieces of the Affordable Care Act are implemented.

“All these credits are refundable, which means you can collect money even though you may not have paid that much” in taxes, or even if you don’t owe any tax at all, Hockenberry said.

That means fraudsters are scheming to steal from the U.S. Treasury.

Once you have figured out that your identity has been stolen and someone has filed a tax return in your name, you have to set about untangling a major mess.

“That’s one of the big surprises to our clients,” Keller said

. “Once they are victimized, it can take at least six months to get this resolved.

“The IRS tries to make it a little easier, but they have a tough job, too. They have to make sure you are who you are and then piece together who is giving them the right information. It is a substantial process.”

The IRS has trained 35,000 employees who work with taxpayers to recognize identity theft indicators and help people victimized by identity theft.

The agency says it tries to settle such cases within four months.

“The IRS has really made this a high priority and they are getting better at stopping this on the front end and red-flagging fraudulent-looking returns,” Keller said.

States are going to have to ramp up their efforts, too, Keller said.

Should state and federal governments issue a whole new set of tax identification numbers to try to stop the fraud?

“So they devise another number for people to use to identify themselves,” Hockenberry said. “Then they’ll start stealing those. What do you do?”

In fiscal 2013, the IRS initiated 1,492 criminal investigations related to ID theft. That is up 66 percent from 2012.

LINKEDIN 1 COMMENTMORE
Read or Share this story: http://detne.ws/1Au4ayy