Litigation Advisory Services Blog

Income Tax Refund Fraud: So Simple It’s Scary

With so much focus in the news about debit and credit card fraud, it’s easy to overlook the rapidly growing economic crime of income tax refund fraud. It’s easy to think about it as something that happens only to other people, but the truth is, there are victims young and old, in every social and economic class, and it’s likely to have happened to someone you know.income tax fraud

Florida is the number one state when it comes to income tax fraud complaints—for three years in a row! In fact, Miami is the number one metropolitan city for identity theft of this kind in the United States.

So, what is income tax return refund fraud and how does it occur?
In simple terms, the fraud occurs when someone has used our personal information (including name and Social Security number) to file a fraudulent income tax return for the purpose of securing an income tax refund.

Here’s how it happens: the fraudster prepares and attaches a fake W-2, which reflects a material amount of federal or state withholding. The fraudulent return is filed manually or electronically.

Fraudulent income tax returns are usually filed very early in the calendar year, well before the legitimate income tax return is even a consideration. Unfortunately, this is easy to do because the income tax authority’s reaction time usually takes months. Remember, the new customer-friendly IRS wants to return the refund back to the taxpayer as soon as possible—and typically before comparing the attached W-2 to any W-2 submitted by the lawful employer.

Consider this: W-2s can be filed with the Social Security Administration as late as March 31. The SSA has to forward them to the IRS for processing and input and that can take months! While all of this is occurring, income tax returns are being filed and income tax refunds processed.

What Can I Do?
First off, file your income tax returns as soon as possible! According to the American Institute of Certified Fraud Examiners, the IRS paid out $5.2B of fraudulent refunds involving identity theft last year. While that seems like a lot, and it is, the IRS stopped $24.2B in fraudulent income tax refunds resulting from identity theft. While this type of fraud has been around since 2008, the scam has tripled in the past three years.

When a criminal has an individual’s personal information, that person is ripe for financial crimes extending well beyond income tax refund fraud. And that can be the beginning of a nightmare. You must be vigilant; and we can help. Skoda Minotti can provide you with the steps you should consider to protect your identify and minimize any potential future economic loss and personal aggravation. If you have questions or would like additional information, please contact Frank Suponcic, CPA, CFE, CFF, at 440-449-6800 or to assist you and recommend additional steps.

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