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‘Tis the Season for Tax Filing … and Tax Refund Fraud

tax fraud

In a recent article, we described how incidences of tax refund fraud usually spike at this time of year. Identity thieves steal personal information like Social Security numbers and use this to file forged tax returns. Then they collect fraudulent tax refunds in unsuspecting victims’ names.

This year, a new and especially dangerous kind of tax refund fraud is occurring. The scam puts a new twist on this type of fraud by actually having money direct deposited from the IRS into victims’ bank accounts.

How the Scam Works

Yes, you read that right. Identity thieves steal victims’ financial and bank account information from their tax preparers and then file fraudulent tax returns with refunds due in their names. The thieves include bank account and routing numbers with the returns so refunds can be direct deposited into victims’ accounts.

Now here’s the twist: The criminals then call the victims claiming to be from a debt collection agency. They say they’re trying to recover the refund that was made in error for the IRS and give the victim instructions for supposedly sending the money back to the IRS. Instead, the money is sent to a bank account controlled by the thieves.

Sometimes criminals use a recorded message with a menacing-sounding voice telling victims that they could be arrested for criminal fraud and their Social Security number blacklisted if they don’t return the refund promptly. The message usually includes a case number and phone number to call in order to arrange for supposed repayment of the refund to the IRS.

“Insidious” Fraud Affects Thousands

An IRS spokesman called this new tax refund fraud “insidious” and added that thousands of people have been affected by it this tax season.

What makes this scam so effective is that victims can go into their online banking accounts and see that the refund was, indeed, direct deposited into their account. If they haven’t filed their return yet, then they know that they shouldn’t have received a refund — so they are anxious to do whatever is necessary to send the money back to the IRS as quickly as possible.

The most important thing to remember is that the IRS will never call you to request repayment of a refund made in error. So if you receive a call like this, the first thing you should do is hang up the phone. Don’t talk to the caller or listen to the recorded message, and don’t call any numbers that will supposedly tell you how to return the money to the IRS.

Returning Fraudulent Refunds

If you’re victimized by this scam, you will need to return the fraudulent refund to the IRS. If the refund was made via direct deposit, call your bank’s ACH department and instruct them to return the refund to the IRS. Then call the IRS at (800) 829-1040 and let them know what happened so they know why the refund is being returned.

If you received the refund via a paper check, write “void” in the endorsement area and mail it back to the IRS at the processing center nearest where you live. (Click here for a list of IRS processing centers.) Include a note with the check explaining that it’s a return of an erroneous refund due to fraud.

One way to monitor what’s going on with your tax records is to sign up for an IRS online account, which you can do by clicking on this link. This will enable you to see all of the recent activity with regard to your tax records and possibly spot any fraudulent activity early, before major damage has been done.

Diligence Pays Off

It pays to be especially diligent during tax-filing season when it comes to guarding against the different variations of tax refund fraud. Visit the IRS website to learn more about tax fraud and how to protect yourself.

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