Technology has certainly changed from when I was growing up. I often think of the differences between the world I grew up in compared to my children’s. For example, nowadays when you drive carpool each kid has to have their own seat with a nice booster until they’re 21 years old. I don’t think I even knew anyone besides the driver was allowed their own seat until I was at least 7. When I was a kid carpool meant you would just lay down all the seats in the back of the station wagon and cram in as many kids as there was breathing room. If there was 2 cubic feet left of airspace then that just meant you could throw a couple more kids in there. To do otherwise was considered inefficient carpooling. My kids will never know the fear of having to pay Blockbuster Video a $1 fee for failing to rewind the VHS tape. They won’t know the heartbreak of inadvertently killing your Tamagotchi digital pet when you failed to feed him over yomtov. And if you wanted to change the channel sometimes you actually had to get off the couch and make the seven foot trek across the room to change the channel (it was my generation’s version of “when I was your age I had to walk six miles to school in the snow without shoes”). Most of these advances, technology or otherwise, have been for the better. However, sometimes these technological advances have had ugly side effects. One of these side effects has been an unprecedented increase in identity theft-related tax fraud.
About five years ago, the IRS started to notice a spike in identity theft-related tax fraud. This past tax season it reached unprecedented levels. The scheme by these thieves is actually quite simple: They use stolen social security numbers to submit fake tax returns claiming a nice size refund. Because the IRS has successfully implemented technology that enables them to speed up refunds, an unintended effect was that it became easier for scammers to get the refund and disappear before anyone is the wiser.
Who makes the perfect victim of this identity theft? Victims tend to be: (1) elderly people in nursing homes (2) prisoners in jail; and (3) patients hospitalized with mental disorders. In other words, the perfect victim is someone that rarely files their own tax returns. This is because the fraud usually goes undetected until the real taxpayer tries to file their tax return. This is why a lab technician in a mental hospital stole medical records from patients and filed false tax returns to net over $500,000. This is also why a bail bondsman supplied inmates’ personal information to his co-conspirators in order to file fake tax returns to net over $100,000 in refunds. The luckiest of thieves are able to connect with corrupt mail carriers. This way the thief can file a fake tax return using real addresses and then pay the mailman to intercept the refund check before it’s delivered. Because the IRS allows tax refunds to be loaded on prepaid debit cards to accommodate taxpayers that do not have bank accounts, the thieves take advantage of this and request the refunds be loaded on these cards to eliminate the hassle of trying to cash a check in someone else’s name.
While I do my best to provide tax advice for the public (hence the column’s name “Tax Tips”), I don’t think it would be helpful to tell you not to go to jail or become old to avoid becoming the “perfect victim.” Besides for just praying that you don’t fall victim to this scam, it’s important to remain vigilant in protecting your social security number. If you do find that someone has already filed a fraudulent tax return using your information, be sure to contact the IRS immediately and let them know.
Daniel Magence, CPA, Esq. is a principal at Pristine CPA Solutions, LLC (www.pristinecpa.com). Pristine CPA Solutions offers tax and accounting services to individuals and businesses of all sizes, whether its tax returns, bookkeeping, payroll services, or personal income budgeting. He can be reached at [email protected] or 201-326-6908 if you have any questions or comments, or are interested in using Pristine CPA’s services. Feel free to contact us for a free consultation.
By Daniel Magence
