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Don’t Be Victimized By Tax Refund Fraud

Tax Identity Theft

If you’re a procrastinator when it comes to preparing your tax return each year, you’re not alone. After all, there are probably a million things you and most other people would rather do than work on your taxes.

But there’s at least one reason not to procrastinate this year: avoiding tax refund fraud. The earlier you file, the less likely you are to be victimized by this kind of identity theft and financial fraud.

How the Fraud Works

In this crime, identity thieves file forged tax returns using stolen personal information, including Social Security numbers. Then they collect fraudulent tax refunds in unsuspecting victims’ names.

Last year, nearly 250,000 Americans were victimized by this kind of identity theft and fraud. The good news is that this figure was down nearly 50 percent from the year before as awareness of tax refund fraud grows and the IRS battles against it. The bad news is that a quarter of a million people still had to deal with the problem.

IRS officials say that one of the best ways to protect yourself from this fraud is to file your tax return as quickly as possible. This is because tax refund thieves usually strike quickly by filing fake returns early in the tax season — before their victims have filed their legitimate returns.

If You’re Victimized

If you are targeted by a tax refund fraud thief, you may receive an IRS notice stating that more than one tax return was filed using your Social Security number, or that you were paid by an unknown employer. Or the IRS might inform you that you have a balance due or refund offset, or that collection actions were taken against you during a year when you didn’t file a return.

Should this happen, contact the IRS Identity Protection Specialized Unit right away at (800) 908-4490. You will be asked to complete an IRS Identity Theft Affidavit (Form 14309), which you should send to the IRS along with proof of your identity (e.g., a copy of your Social Security card, driver’s license or passport). Be sure to write down the dates of any phone calls you have with the IRS and to make copies of your correspondence with them.

In addition, you might also consider filing a police report, putting a fraud alert on your credit reports, and filing an identity theft complaint with the Federal Trade Commission.

This year, the IRS is trying something new to help combat tax refund fraud. They are verifying the authenticity of data on approximately 50 million W-2 forms by including a special 16-digit verification code on the forms. By requiring taxpayers to enter this code when filing electronically, this step will help prevent fraud that occurs when the IRS issues a refund before it has received its copies of W-2 forms.

More Motivation Not to Procrastinate

Of course, the sooner you file your tax return, the sooner you’ll get your tax refund — assuming you have a refund coming to you. So if avoiding tax refund fraud isn’t enough motivation to get started on your taxes, maybe getting your refund faster will be.

An even better strategy for most people is to avoid getting a tax refund in the first place. Think about it: A tax refund is simply a return of your money that you overpaid to the IRS. So if you consistently receive a large refund each year, adjust your tax withholding or estimated tax payments so you keep the money in the first place.

For example, the average tax refund last year was $2,857. By avoiding this overpayment, the average taxpayer would increase his or her monthly income by $238!

If you have more questions about tax refund theft or adjusting your withholding or estimated tax payments, please give us a call.

The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.