A couple of years ago, a client of mine became a victim of identity theft. That year, my client was late in getting his information to me, so I had to file an extension for him. In early May, my client sent his information to file the return. I tried to e-file the tax return, and it was rejected by the IRS. The return was rejected because the system said that a return had been filed for him. I thought that the IRS had certainly made a mistake, so I tried to e-file the return a second time. Again the return was rejected. This time, I called the client and asked him if he had maybe filed a return and had forgotten. He said that he had not filed yet and he was as confused as I was. I prepared a Power of Attorney, which would allow me to talk to the IRS regarding the issue. I pulled my client’s transcripts from the IRS, and sure enough a return had been filed using an address that was different from my client’s address. The return showed Social Security income with a $4,000.00 refund. This return was not a return that my client had filed. I immediately asked my client to file a police report.
The IRS has seen a substantial increase in refund fraud that involves claims for refunds by thieves using someone’s Social Security Number. According to the IRS they have initiated approximately 900 identity theft related investigations. That is triple the number that they initiated in 2011. The time used by the IRS to identify theft related investigations increased by 129 percent over the same period. Sentences that have been handed down to the criminals have been anywhere between 4 months to 300 months. The following table will show the IRS’s efforts.
FY 2013 As of January 31
FY 2012
FY 2011
FY 2010
Investigations Initiated
542
898
276
224
Prosecution Recommendations
441
544
518
147
Indictments/Information
353
494
165
94
Sentenced
90
223
80
45
Act a recent press conference acting Commissioner of the IRS, Steven Miller, reported that “In fiscal year 2012 we prevented the issuance of more than $20 billion in fraudulent tax refunds, up from $14 billion the year before.” Mr. Miller went on to say “As tax season begins this year, we want to be clear that there is a heavy price to pay for perpetrators of refund fraud and identity theft.”
The IRS has made a dramatic increase for the 2013 tax season in the number and quality of identity theft screening filters that that are designed to stop fraudulent tax returns before a refund has been issued.
In late 2012, the IRS assigned 3,000 employees to work on identity theft issues. This number is double what it was in 2011. The scope of the employee job is to prevent refund fraud, investigate identity theft-crimes, and to help people who have had their identity stolen. The system that has been set up has delayed refunds that are due to taxpayer’s by holding refunds until the return can be verified. This can take up to six months to complete a review.
My client ended up receiving his tax refund in about six months from the time that I initiated the contact with the IRS.
For more information visit www.smalleynco.com
If you have any questions you can email Craig W. Smalley E.A.
Author of the books: It Starts With an Idea – Tax Tips for Small Businesses available on Nook and Kindle, The Ultimate Real Estate Investor Tax Guide, available on Nook and Kindle, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012 available on Nook and Kindle, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections available on Nook and Kindle, Tax Avoidance is Legal! The Complete Guide to Individual Income Tax available on Nook and Kindle, The Complete Guide to the Affordable Care Act’s Tax Provisions available on Nook and Kindle, The Complete Guide to Retirement Plans for Small Businesses available on Nook and Kindle, The Complete Guide to Estate, Gift and Trust Taxation, available on Nook and Kindle, and The Complete Guide to Hiring an Accountant, available on Nook and Kindle.
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