Taxpayers Beware: Filing Scams and Refund Fraud on the Rise, Says IRS

There is encouraging news from the IRS this week: Statistically speaking, you likely are due a refund when you file a tax return.

There is also discouraging news: That refund may end up with someone who stole your identity.

So it goes with America’s most feared – and loathed – government agency.

The IRS started the week with a release that said 82 percent of the 146 million Americans who filed income tax returns last year, received refunds.

A day later, the agency issued its “Dirty Dozen” list of scams to beware of, and identify theft was at the top of the list. The agency said it now has more than 3,000 agents devoted to this issue and that it prevented $20 billion in fraudulent refunds last year.

“The IRS has stepped up its efforts to protect taxpayers from a wide range of schemes, including moving aggressively to combat identity theft and refund fraud,” IRS Acting Commissioner Steven T. Miller said in the release. “The Dirty Dozen list shows that scams come in many forms during filing season. Don’t let a scam artist steal from you or talk you into doing something you will regret later.”

The “Dirty Dozen” list overshadowed the encouraging news that, if you file, most Americans are due money back from the government.

Not Many Returns Examined

The IRS collected $2.5 trillion in revenue for the fiscal year 2012. The 120 million taxpayers due refunds, collected $322.7 billion, an average of almost $2,700. The IRS could even boast that it had its most efficient season in five years, spending only 48 cents to collect every $100 in tax revenue.

The agency revealed that less than 1 percent (1.5 million) of individual returns were examined, and nearly 54,000 of those resulted in additional refunds.

The last note of good news is that $917 million in refunds could be waiting for the estimated 984,000 taxpayers who did not file tax returns in 2009. The IRS says that half of those would get refunds in excess of $500. The deadline to claim a refund for 2009 is April 15, 2013.

That would also be the deadline for those who like to stay current in filing their income taxes, but the IRS has some things to watch for.

The issue of identity theft is a huge problem. The IRS says it’s put in additional steps to prevent identity theft and refund fraud before it occurs, including a special section on its website, but it’s still a major problem.

Be Careful Who Prepares Return

One unexpected area where it happens is when people hire someone to prepare their return. Identity thieves use people’s names and Social Security information to file phony tax returns and pick up the refund checks. The IRS suggests that you only hire a preparer who will sign your return and enter an IRS Preparer Tax ID number.

Other challenges to be aware of include: phishing (unsolicited email or websites that pose as legitimate tax sites); inflating expenses to maximize a refund; and hiding assets through misuse of trust funds.

The IRS is very aggressive in assessing and collecting fines for fraudulent tax returns, including wage garnishments, tax liens and levies.