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03/09/2015

Tax-Related Identity Theft on the Rise

New statistics released by the Law Enforcement Assistance Program show progress is being made in the discovery of tax-related identity theft cases, but they also indicate that these cases are on the rise.  Warning: Know who you are dealing with when it comes to sharing your personal information as well as who you choose to prepare your tax return.

Tax identity theft graphic

In most cases, the identity thieves are using stolen social security numbers and other taxpayer information to file fake tax returns in order to receive fraudulent tax refunds.  They are using information stolen from government, organization and business databases and some even claim to be tax preparers and accountants to collect personal information.

Now due to an increase in criminal activity, more small businesses are being notified to protect their clients’ personal data and to monitor more closely for data breaches.

The newly released IRS Top Ten Identity Theft Prosecutions list shows tax-related identity thieves are working all across the country.  The number one case involves a 2 small business owners in North Carolina who used stolen names, birth dates and social security numbers, some collected by their business store fronts, to file more than 1,000 false returns to collect nearly $4 million dollars in fraudulent tax refunds.

The good news is that new laws have given rise to more efficient joint criminal investigations between federal, state and local law enforcement officials.  They are now able to discover the tax-related crimes sooner and share information to result in more prosecutions.

In fiscal year 2014, federal agencies report a 75% increase in the success of law enforcement cases with 748 convictions and sentencings in FY 2014 compared to 438 in FY 2013. 

New laws also allow courts to impose higher sentences resulting in a rise in incarceration rates last year from 7.1% of convictions to 87.7% of convictions.  The amount of time convicted offenders must serve in jail is also increasing from an average 38 months in jail (3.2 years) to 43 months (3.6 years). The longest prison sentence handed out in 2014 was 27 years.

How do you protect your personal information from this kind of tax-related crime?  Stay alert and ask more questions.

  1. The IRS never communicates with a taxpayer by email, text or social networking to collect personal or financial information.
  2. The IRS does not make phone calls to taxpayers to collect information nor to demand payments.
  3. If you receive notice that more than one tax return has been filed under your social security number, contact the IRS right away.
  4. If you receive a notice that you received wages from an employer unknown to you, this could be a sign that someone is filing a fraudulent return using your social security number.
  5. If you receive a notice that a government benefit has been cancelled because of an income change and you have not had an income change, your information may have been used to file for a fraudulent refund.
  6. Ask more questions to be confident that your tax preparer is certified and working for a real company with a good track record.

You can find out more information in the Taxpayer Guide to Identity Theft, which explains what to do to prevent identity theft as well as what to do if you believe you have already been a victim of this kind of crime.

Our tax preparation experts at McRuer CPAs are trained and experienced professionals ready to help you.  If you have any questions about tax-related identity theft, contact us for more information.

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