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What To Do If Your Refund Is Stolen

  Sanjiv Gupta CPA  Published 
What To Do If Your Refund Is Stolen

I recently wrote about an incident where the IRS employee filed returns under different taxpayers' names and walked away with their refunds.  Today, I want to add more to this conversation.

 This topic is especially interesting to me because I spend lots of time educating clients about the security risks involved in financial transactions.  Just like last decade, identity theft topped the list of consumer complaints received by the FTC in 2011, with nearly 280,000 complaints, according to a report released on Tuesday.   Now, the interesting news is that a bigger chunk of those cases is tax-related, with 24% of identity theft complaints being tied to tax or wage-related fraud, up from about 15% in 2010, according to the FTC.  This is the cause of concern for most taxpayers – no matter how and when they file their tax returns.

Victims may not discover this kind of fraud until they file their tax return and receive a rejection note from the IRS.   In some cases, it may take even longer to know something is wrong.  The victim may wait a couple of months waiting for their refund check only to find out someone else has already filed a return or information of your tax return do not match the IRS records.

Are you concerned about this kind of fraud? IRS advises taxpayers to report suspected fraud by calling 1-800-908-4490. This number will connect you with a department specialized in dealing with identity theft problems.  IRS also recommends taxpayers to hold on to any letters sent to them from the IRS.  The taxpayer will need to fill out the IRS Identity theft Affidavit, a form for reporting fraud or suspected fraud and file it with IRS.  Moreover, Victims of such fraud will also need to prove their identity by sending in documents; such as W-2 forms, previous tax returns, and a photo ID.  Fraud victims should also check their credit reports for recent activities and alert the credit reporting agencies about any accounts or charges fraudulently made in their names.  The taxpayer should also check their bank account and change their password for all online accounts.  In addition to all, The Federal Trade Commission also recommends filing a report with your local police department and placing a fraud alert on credit reports. This can help police catch the fraudster on the run and save you from future trouble.

How long does it take to get your stolen refund back?

Humm – depends on the IRS, and your luck.  I have heard of cases where it took more than a year to get this mess cleaned up and you can expect at least six months in most cases.  

Want to know the process of the IRS?

I am not sure but from what gathered on the internet is that the IRS has to confirm the victim’s identity, track down the fraudster and locate the funds.  Once all is said and done, the victim will get the refund along with very tiny interest.

As I stated earlier, tax return fraud is on the rise and the agency has stepped up enforcement actions, including the use of the latest technology to identify false tax returns before the refunds are issues.   Just to give you an idea, in the month of January, 58 arrests were made related to tax frauds.   IRS is also actively warning taxpayers about this kind of fraud.  You can now find a special fraud section on the IRS website that is regularly updated with new information.

How can you protect yourself?

Simple – do not share your information with others.   Fraudsters collect taxpayer information via emails, websites, phone calls and now using social media.   Under no circumstance give out your personal information to anyone no matter how legit it may sound.  IRS already has your information and therefore they will never ask for your social or any other personal information.