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What is Stolen Identity Refund Fraud?

Stolen Identity Refund Fraud (“SIRF”) is the stealing of an individual’s identity with the express purpose of filing a fraudulent tax return in the individual’s name to receive a refund.  In 2013, the Internal Revenue Service (“IRS”) estimated that over 5 million tax returns were filed using stolen identities, claiming approximately $30 billion in refunds.  Yes, that is billion!!!  Fortunately, the IRS was able to stop or recover over $24 billion of that total, or approximately 81% of the fraudulent claims.  Despite this, the problem has only gotten bigger.

Stealing tax refunds does not require personal contact with the victims.  Identity thieves use various methods to maliciously obtain personal information.  One of the most common methods used to obtain personal information is “phishing”.  Phishing is a technique used to gather private information by sending false electronic communications from a seemingly legitimate source.  This may take the form of e-mail communications or phone calls.  SIRF criminals also have used data stolen from hospitals, nursing homes and public death lists.  The point is identities used in SIRF crimes may be stolen from anywhere.  Information SIRF criminals are specifically looking for include social security numbers, dates of birth, adjusted gross income and the name and number of dependents.  But one’s social security number is the key.  Criminals intent on committing SIRF need your social security number to file a return in your name.  Typically, SIRF perpetrators file the false returns electronically and early in the tax filing season so that the IRS receives the false SIRF return before legitimate taxpayers have time to file their own returns. The SIRF perpetrators arrange to have the refunds electronically transferred to debit cards or delivered to addresses where they can steal the refund out of the mail.

Often, these schemes involve hundreds of people.  In a recent case, three people were found guilty of federal charges for participating in a scheme to file false federal income tax returns.  Approximately two dozen other participants in this scheme have pleaded guilty to charges and the government’s evidence suggests that an extensive network of more than 130 people actually participated in this massive and sophisticated SIRF scheme.  According to court documents, the overall case involves the filing of at least 12,000 fraudulent federal income tax returns that sought refunds of at least $20 million.

So, how will you know if a fraudulent tax return has been filed using your personal information?  When the IRS receives two different returns with the same social security number, the second return filed will be rejected and you will get a written notice from the IRS explaining that a return has already been filed with that social security number.  This is the reason SIRF criminals want to file early – they want the return you file to be the one that is rejected.

What steps can an individual take to prevent this type of fraud?  The first and most important step is to keep your social security number private.  Other steps include:

  • Never carry your social security card on your person.
  • Don’t give out your social security number (or any other personal information) over the phone if you have not verified the identity of the person to whom you are speaking.
  • Ignore and delete e-mails seeking your social security number, even if they claim to be from the IRS. Remember, banks, financial institutions and tax authorities won’t ask for this information in phone calls or e-mails.
  • Install anti-virus security software on your computer that has a strong firewall and remember to use strong passwords and to change them from time to time.

If and when you discover that another tax return has been filed using your social security number, you will want to take a number of steps including:

  • File an identity theft report with your local police department
  • File a complaint with the FTC at identitytheft.gov.
  • Alert all three credit bureaus and ask them to place a freeze on your credit report file so that other unauthorized accounts cannot be opened in your name.
  • Contact your financial institutions and close any accounts that have been opened in your name without your authorization.
  • Notify the IRS by phone and file IRS Form 14039 (Identity Theft Affidavit).

Government agencies are also doing their fair share to try and stem the tide of SIRF.  The Tax Division of the US Justice Department is working closely with every United States Attorneys’ office as well as local law enforcement to respond efficiently and forcefully as these cases come up.  The State of Ohio also has implemented an identity confirmation quiz that began in 2015.  This process will verify every tax return through a computer system that will flag potentially fraudulent or suspicious returns.  Some taxpayers may receive a letter from the Ohio Department of Taxation requesting them to complete the identity confirmation quiz before they receive their refund.  To complete the quiz, the taxpayer will need the reference number and authorization code from the letter as well as the refund amount requested on the Ohio state tax return.