South Florida

Your tax refund may already be ripped off — even before you get your W-2

Even before you turn in your 1040 tax form, ID thieves may be filing for your refund.
Even before you turn in your 1040 tax form, ID thieves may be filing for your refund. AP

If you just received a W-2 income tax form from your employer and are preparing your return for 2016, you’d better hurry up.

Chances are, a thief may have already stolen your identity and sought a tax refund in your name — a common horror story in South Florida, long recognized one of the ID-theft capitals of the nation.

This past week, federal prosecutors announced a variety of arrests involving more than 100 suspects who stole tens of thousands of identities for an array of financial crimes, including income-tax fraud, in attempts to rip off $60 million.

“There are all kinds of different schemes, but it all boils down to the stealing of personal information,” U.S. Attorney Wifredo Ferrer told the Miami Herald on Friday. “When there’s greed and there’s money, there’s no end to what these fraudsters will do.”

Florida is among the worst states for identity theft rates, trailing only Missouri and Connecticut. South Florida also ranks third among metro areas in the country.

Among the recent ID-theft crime cases: A former Jackson Health System employee swiped about 24,000 Social Security numbers from the hospital’s patient database to supply a tax-refund ring. A Miami man filed fabricated tax returns seeking refunds from $130,000 to $170,000 and received a total of $4.3 million from the Internal Revenue Service. And two Miami-Dade residents impersonated officials from the IRS during phone calls in which they claimed the victims owed the agency money.

Although the latest round of arrests seems staggering, consider that the U.S. attorney’s office has charged more than 600 suspects who used about 130,000 stolen IDs to collect $400 million in tax-refund and other financial scams over the past five years. But also keep in mind: Those are just the ones who got caught.

Kelly Jackson, special agent in charge of IRS criminal investigations in Miami, said the agency has used “filters” and other technology to screen and stop hundreds of thousands of bogus tax returns, resulting in a 50 percent drop in the processing of fraudulent refund claims in the past two years. “They are working hard at authenticating who the taxpayer is and stopping fraud,” Jackson said.

Still, the pernicious problem of ID theft fuels the filing of phony refund claims, she told the Herald. She said honest taxpayers need to be vigilant about protecting their identities from being stolen and about finding a legitimate tax preparer who can file a return in a timely way.

“The best thing someone can do is file early” during the tax season, well before the April 15 deadline, Jackson said Friday.

Here’s why: Under a congressional mandate to issue fast refunds, the IRS currently doesn’t verify employees’ W-2 income tax forms with their employers’ documents before the filing deadline. That gives criminals a three-month window to use stolen identities to fabricate returns and beat legitimate tax filers to their refund claims.

The crime goes on steroids when those stolen IDs — which fetch from $1 to $100 on the street — get into the hands of crooked tax preparers with a special tax-filing designation from the IRS. With an “electronic filing identification number” — EFIN for short — a dishonest tax filer can submit fake tax returns in bulk and score tens of thousands of dollars almost immediately.

The U.S. attorney’s office has won convictions of dozens of illegitimate South Florida tax preparers, sending them to prison for stealing millions, but the EFIN problem still persists, Jackson said.

In recent years, the IRS has been hamstrung by Congress in the agency’s effort to restrict the issuance of EFINs, which can be easily obtained by both CPAs and fly-by-night tax operators. The IRS wants to require a minimum competency test for tax preparers — and so does the industry — but it needs congressional approval.

As result, Jackson said, “choosing a preparer is extremely important.”

She also said IRS investigators have uncovered an increasing number of scams in which strangers impersonate IRS officials over the phone and seek money from the public, especially vulnerable senior citizens. “The IRS is never going to call you for money,” she warned.

Jackson cited one encouraging development in the crackdown on tax-fraud offenders: Congress passed a law allowing the IRS to put a hold on all refund claims involving earned income tax credits and child tax credits until Feb. 15, so the agency can carefully review them. Once approved, she said, “these people are not going to start seeing their refunds until the end of February.”

Fraud-busting tips

1. Secure personal information in your home.

2. Shred all personal financial papers.

3. Be careful about what you throw in the trash.

4. Be wary of sharing your Social Security number with anyone.

5. Be vigilant when choosing a tax preparer.

6. File income-tax returns as early as possible before the April 15 deadline. The IRS started accepting returns Jan. 23.

If you think you are a victim of identity theft and tax refund fraud, report the crime to local police, then contact the Internal Revenue Service at www.irs.gov. There is a link for filing a complaint and filling out an affidavit of theft and fraud. After you do, it will be assigned to a case manager, but the process is slow.

Any taxpayers who filed tax returns last year in Florida can obtain a six-digit Identity Protection PIN from the IRS to help protect them from potential tax fraud. Anyone who qualifies should visit www.irs.gov/getanippin to register.

Source: U.S. Treasury Department; Federal Trade Commission

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