Tax commission seeing more identity theft on tax returns

Tawnya Eldridge (right) with the Idaho State Tax Commission says filing fraudulent tax returns is a numbers game for potential criminals, because they can e-file many returns in the hopes that a few of them will pay out. Photo by Brad Iverson-Long.

Tawnya Eldridge (right) with the Idaho State Tax Commission says filing fraudulent tax returns is a numbers game for potential criminals, because they can e-file many returns in the hopes that a few of them will pay out. Photo by Brad Iverson-Long.

The Idaho State Tax Commission worked with five Idahoans who said they were victims of identity theft in 2011. Last year, they worked with 170 such people.

Typically, such cases happen when someone acquires a taxpayer’s Social Security number, then electronically files a fraudulent tax return with the Internal Revenue Service to get a refund. When the real person uses their own Social Security number to file their taxes, the duplicate is, at least initially, rejected by the IRS.

Identity theft in general is a growing crime because the penalties tend to be less for violent crimes,” said Tawnya Eldredge, a subject matter expert on identity theft with the Tax Commission. “It tends to be more profitable with less risk.”

Eldredge said the rise in tax fraud identity theft is, in part, a numbers game. People who want to  commit fraud can use a slew of ill-gotten Social Security numbers along with fraudulent W-2s or other tax forms and e-file dozens of tax forms in a day’s work. The returns paid by the government are direct deposited into accounts that can be closed quickly and are thus difficult to trace.

“The e-file has made it very easy to manufacture W-2s and send those in as quickly as they can,” Eldredge said. She said could couldn’t fully explain the large increase in identity thefts reported to the Tax Commission, but an increased emphasis on e-filing, especially in the past five years could play a role.

“I’ve read that it’s a growing crime, simply because it’s less risk for possible more gain,” she said.

Some identity thieves connect fraudulent W-2s with very large companies. That makes it easier for the claims to get lost amongst the thousands of people working for such companies.

“Those refunds have the potential to go out too quickly before they get caught,” she said.

Eldredge said the state typically gets involved after an Idaho taxpayer has an e-filed federal tax return rejected, then calls the tax commission to check on their state tax return. She said the commission, after verifying the taxpayer’s identity, can see if their state taxes are affected and help them clear up their accounts. Eldredge said much of her work is in assisting victims of such identity theft.

“They’re shocked. They never dreamed someone would get a hold of their information and file tax returns,” she said.

While the Tax Commission has seen a large increase in this kind of identity theft, Idahoans overall don’t report a high rate of such crimes. The state ranked 43rd in 2013 in complaints of identity theft to the Federal Trade Commission, which tracks such issues, with just under 50 complaints per 100,000 people. Florida, Georgia and California had more than twice the rate of complaints. The rate of complaints was slightly higher in the Treasure Valley than the state average, and slightly lower in Coeur d’Alene.

Peter Robbins, partner in the Boise office of accounting firm CliftonLarsonAllen, said a few of his firm’s clients over the years have had their electronic filings rejected by the IRS, which warranted following up.

Both Robbins and Eldredge said it’s important to guard private information, including Social Security numbers. Robbins said most accounting firms are extremely sensitive to client confidentiality, but he occasionally receives e-mails from clients with W-2 or 1099 forms, which contain such information, attached.

Eldredge said people shouldn’t carry their Social Security card in their wallet and should frequently check their credit reports and open, then shred, any mail that could have sensitive information.

But “for most of us, there’s no 100 percent guarantee that our identity won’t be stolen,” she said.  If your information is stolen, she said it’s important to start a paper trail of the incident, including filing a police report and reporting the issue to the FTC.

Article source: http://idahobusinessreview.com/2014/03/20/tax-commission-seeing-more-identity-theft-on-tax-returns/

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