How E-Filing Increases Tax Fraud

Tax Fraud is Linked to E-Filing

Tax season brings with it more than just forms and returns. It also bring a major increase in identity theft and tax fraud.

One of the big reasons that tax season leads to identity theft is because people are filing their taxes online. E-filing is increasing in popularity because it provides immediate proof that your taxes have been filed and it expedites the process of receiving a tax return. Unfortunately, e-filing can create problems like tax fraud.

What is Tax Fraud?

Tax fraud can take many different forms including refund fraud, tax-identity theft, and return-preparer fraud. E-filing leaves the public much more vulnerable to these types of scams because internet fraud is harder to track than fraudsters who leave a paper trail.

In refund fraud, a scammer alters the routing information for the return. This allows the scam artist to file a legitimate return for another individual, but have the money deposited into an account they have access to. Without an audit notice, there is no way for the victim to be aware of this crime. This is one of the more common scams against senior citizens perpetrated today.

Another example of tax fraud occurs when a third party tax preparer uses the information they receive from clients in previous years to file a false claim. If you use a third party tax preparer, do your research to ensure that this person is legitimate and will not retain your information so that they can scam you in subsequent years.

How E-filing Makes Fraud Easy

Fraudulent tax claims can be filed using real information–such as the name and social security number–in combination with a fake W-2. It is even possible for the refund to be posted to an anonymous prepaid credit card that can be purchased at any drug store.

Many people use the Electronic Federal Tax Payment System to receive their returns. The IRS, however, does not compare the names on the bank records to their own files, which is a common practice among most creditors. This oversight makes it very easy for a scammer to send funds into an account to which they have access.

What Can You Do?

A preventative option is to request an electronic filing PIN from www.irs.gov. You can also file an Identity Theft Affidavit, which informs the IRS that they should apply additional return-screening procedures. You cannot count on traditional credit-monitoring services in these cases.

If your refund check is lost or stolen you can request that the IRS send a replacement. However, funds that are stolen using an altered routing number cannot be retrieved.

If your tax refund is stolen via an alternate routing number, your only recourse is to contact the alternate bank to request your funds. You also have the right to sue the preparer of your return.

You should contact the IRS Identity Protection Specialized Unit or the Taxpayer Advocate Service as soon as possible if you become a victim of tax fraud. This information helps the IRS track trends in tax fraud, although there is a backlog of cases so do not expect yours to be resolved quickly.

Another option to consider is letting eConsumer Services® help. Thanks to our extensive network of contacts regarding credit card scams, internet scams, and other types of fraud, we may be able to help get your money back.

We also provide valuable insight into how to avoid email scams and other types of fraudulent activity.

In this struggling economy, you need every penny you’ve earned! Don’t let a fraudster get your tax return. Use caution to ensure that your refund – and identity – stay safe.