Where is my Refund? Answer: Stolen
21st Century Internal Revenue Theft
By Joy Taylor
On April 6th, a woman who we shall call Marie (to protect whatever little identity she has left after this income tax refund theft)…attempted to file her income tax return electronically. After filing she immediately received a confirmation that the IRS had received her return. Within a few hours she received another email from the IRS stating that she may have inadvertently transposed some numbers, or to check her records as an income tax return with her social security number had already been filed. Confused, she immediately contacted the Internal Revenue Service.
The IRS representative, Ms. Martin, explained to Marie that her tax return had been filed in early February with her name and Social Security number. Ms. Martin then went on to establish Marie's identity and asked her…had she ever filed as Head of Household, and if so what were the years she filed as Head of Household. Two questions that were not asked on the electronic filing. Once she established her identity, Ms. Martin disclosed to Marie that another person had filed a fraudulent tax return using her name and social security number, and that person received a refund.
Marie was completely stymied. She began to recall the last place that she would have given all the information necessary for someone to steal her income tax refund…a light bulb went off…she had refinanced her home a few months before and of course, as we all do, was required to submit all of her personal and financial information to the mortgage and title company. Ms. Martin further explained that in order for Marie to collect her refund she would have to submit the following paperwork and documents and mail them to the IRS.
She also suggested that Marie place a fraud alert on her credit report (once you place a fraud alert with one of the three major credit reporting agencies, they will report it to the other two). You may also want a more restrictive "credit freeze" or "security freeze." This blocks all access to your credit report unless you give permission. Please check with one of the *credit reporting agencies in regard to freezing your reports
Once Marie met with the police and a report was generated, she was instructed by Ms. Martin to mail that along with her tax return, a copy of her driver's license, an Identity Theft Affidavit (printed from the IRS website), and a copy of her social security card.
This type of theft appears to be much more widespread than first thought. As reported on April 10, 2008 by the *Treasure Inspector General for Tax Administration, On The Hearing Before the U.S. Senate Hearing on Finance, essentially, the IRS has failed to address requirements during development of its modernized systems. As a result, it is deploying several new systems that lack detection capabilities. Without these audit trail logs, the IRS does not know what configuration changes are made or who makes them. Intruders and ill-intended IRS employees who have access to these components could steal taxpayer information with little chance of detection.
They also found that the use of criminal refund freezes, if implemented correctly and reviewed in a timely manner, could have prevented the issuance of over 20,000 fraudulent refunds totaling $71.7 million during Processing Year 2005.
Despite the growing problems, it appears that the IRS is overwhelmed and not able to prevent this ongoing problem or prosecute those who commit these crimes. Overall, the IRS not only lacks the comprehensive data needed to determine the impact of identity theft on tax administration, it faces enormous challenges in securing the vast amount of personally identifiable taxpayer information that it stores.
Researching the concept and safety of "electronic filing" of income tax returns to find out how there are such big holes in this system that would allow for thieves to steal other people's refunds, I spoke with Michael L. Dobzinski, an IRS Media Relations Specialist, about these very serious crimes.
When I asked Dobzinski what the difference in refund fraud has been in dollars and the amount of income tax fraud committed since the electronic filing system had been put into place, he said, "electronic filing is actually a good thing as it has a system in place that when a person files and if there is a problem it alerts the IRS immediately." This came as quite a surprise to Marie, as unbeknownst to her, her refund had been stolen months before she attempted to file her return electronically, and she was never alerted to the theft, and Ms. Martin of the IRS was just as taken aback and if Marie had not called, the IRS would not have been aware of this theft.
I did not get an answer to my initial question so I continued my inquiry asking for the statistics of this crime, i.e., how many fraudulent refunds have been issued, how many refund thefts has the IRS incurred since electronic filing has been put into place, how many cases are prosecuted, how many that are caught serve time for their crimes, do they recoup any of the stolen refund dollars, what is the dollar amount that is recuperated, and what is the dollar amount that is lost.
I was told the information I requested was not available to the public so I was not able to receive hard numbers from the IRS, but I was told that they now have a special unit designated to investigate these crimes. It appears that this type of theft is no longer unique, only unknown to the majority of taxpayers.
As I explained to Dobzinski, this article is being written specifically to alert the millions of taxpayers who are unaware of this type of crime so they may safeguard their income tax refunds and their financial and personal information. Forewarned is forearmed (see Links and Contact Information at the end of this article).
When asked how the IRS was alerting the taxpayers about this crime, Dobzinski said that he himself has been on television and radio in regard to these issues, and there was also information on the IRS website regarding refund fraud. When I asked where I might locate his interviews, he said those transcripts were not available. He did, however, email me a few links, none of which contained any information specifically related to income tax refund theft. However, the information on the links (see below) is directed at identity theft.
I asked Dobzinski to define income tax refund theft, and he said, "I would like to clarify and stress one point. You repeatedly refer to the issue as 'stolen' refunds or refund 'theft'. While it may appear to taxpayers that that is the case, it's the theft of one's identity that can cause a tax return to be filed fraudulently to get a refund. An individual so doing, could be charged with filing a false return." My response was, when someone takes something that belongs to someone else without their permission, that is called stealing. It's just semantics. He added, "additionally, if nothing else, I hope you can convey to your readers that taxpayers can get the help they need with identity theft situations that affect their tax return by contacting the *Identity Theft Protection Unit."
Voila…exactly my purpose for writing this article!
After all my research and this interview I am left with more questions than answers. I now wonder how many millions, maybe billions of fraudulent taxpayer refund dollars are being stolen by these IRS income tax refund thieves, how many of these go uninvestigated, how many are actually investigated and prosecuted, but never go to trial, and how much money is lost as a result of unsuccessful prosecutions, and the inability to investigate. My son teaches AP Calculus and I cannot count that high!
Here we are, the taxpayers, whose hard earned money goes to pay the salaries of the IRS employees, and their investigative units, to pay Congress' salaries (who sets the laws for the IRS, and the Department of the Treasury/Finance who investigates the IRS) along with their health insurance and benefits, and yet we are not privy to the details of the number of illegal refund payments that are being processed each year or how many of these frauds are being processed electronically as opposed to paper. Why are they trying to keep these statistics hidden? I would think the IRS would be open to alerting taxpayers of these numbers just to avert future income tax refund thefts.
We really need to begin to take back our government by being more proactive. Benjamin Franklin must surely be turning over in his grave. I recall in school reading that the American government was…by the people, of the people and for the people…hard to believe in light of this information or lack thereof.
With all this new technology, what we really need to do is stop and look at the realities of instant gratification. Instead of rushing to use the fastest, latest and alleged greatest widget, why not ask the question first…what safeguards are in place so we may avail ourselves of all this new, wonderful technology and not become victims of theft of our information, both personal and financial.
It was reported by The New York Times in 2003, nearly 7 years ago, that 19 people were charged in Identity Theft that netted $7 Million in tax refunds, and that they used the Internal Revenue Service's system for filing electronic tax returns. With this knowledge why hasn't the IRS been more open and vigilant about this type of theft, and more importantly, why hasn't the IRS and the Department of Revenue and Congress for that matter, informed the taxpayers in every medium possible so we may be made aware of income tax refund theft. This information would possibly lower the risk of future refunds being stolen. Out of the 72 million who filed last year electronically, how many fraudulent refunds were issued?
I offered a simple fix to the IRS spokesperson as to how the IRS may avert this type of theft in the future. Simply ask each taxpayer to set up a pass code or pass word on their account once they have established their identity. Yes, an occasional thief may in fact set this up, but once the theft is discovered, and the rightful owner of the social security number steps forward, they will then establish the protected information. I believe in this way, we may be able not only to protect all taxpayers from future theft, but also save billions of dollars.
Common sense, not so common anymore…
Footnote: Marie has still not received her refund!
Links and Contact Information
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