5 On Your Side

Fake tax return scam affects thousands, including Rocky Mount baby

Posted July 20, 2015 6:15 p.m. EDT
Updated July 20, 2015 6:33 p.m. EDT

— For years, a Rocky Mount family had to send stacks of paperwork to the IRS – prescriptions, medical bills and even photos – after someone stole their baby’s identity and filed a fake tax return.

The Smith family is not alone. The Internal Revenue Service is at the center of a multi-billion dollar problem, called Stolen Identity Refund Fraud, or SIRF, that’s costing taxpayers time, money and frustration.

The U.S. Department of Justice says anyone with a Social Security number can be a victim. As the Smith family discovered, even a baby’s information is not safe. A scammer hijacked their daughter Laura Catherine’s SSN and filed a fake tax return, setting off a nearly five-year battle with the IRS.

“It did become more of a hassle than we could have ever imagined,” said Christy Smith, Laura Catherine’s mother. "We were audited for 2011 and 2012. And it was at that point that (the IRS) started saying we owed them money back – $1,600 for each year."

Each year, the Smiths spent countless hours trying to prove Laura Catherine is their daughter. They had to contact their pastor, doctors, past and current neighbors to get them to vouch for Laura Catherine’s true identity.

Then, the North Carolina Department of Revenue began demanding money from the Smiths from that contested return.

“They were going to begin garnishing state wages from our checks, and there was nothing we could do about it,” Christy Smith said.

Stolen Identity Refund Fraud impacts hundreds of thousands of taxpayers. A Raeford viewer contacted 5 On Your Side after the IRS refused to send her refund until she proved her identity. A Greensboro taxpayer said his federal return was kicked back because someone already used his SSN.

The IRS estimates more than 5 million tax returns were filed in 2013 using stolen identities. The agency paid $5.8 billion in fraudulent refunds.

"We get calls now, routinely within the first week that we are accepting electronically filed returns, and people's identities have already been compromised,” said Raj West, with the IRS Criminal Investigation Unit.

The IRS says cracking down on the fraud is a top priority. It used to be random criminals filing a few dozen fraudulent returns, but the IRS says now criminal enterprises are using automated computer systems for mass filings.

The agency recently announced that it's working with the tax industry to share information, track claims sent from the same computer and catch multiple refund checks sent to the same place. The goal is to stop the fake returns before they are processed.

Another issue, the IRS says, is a flaw in the system that creates a window of opportunity for scammers. With just a name and SSN, anyone can file a tax return as early as Jan. 1, but employers don't have to provide W-2 information to the IRS until March. By then, about half of all refunds are already paid.

“It can't be ignored that criminals want to take advantage of that window,” West said. “The quicker that you can get your return prepared and make it accurate and get it filed, the less likelihood is that the criminal is going to beat you to the punch."

To protect victims, the IRS recently rolled out Personal Identification Numbers to use to file taxes. The Smiths now have a PIN but say they are “still nervous.”

Adding to the Smith's stress of getting a resolution, the IRS admitted they were six months to a year behind in paperwork. The agency says it's working on that and on more changes so that taxpayers "have a safer and more secure experience" next filing season.

Tips to protect you from becoming a victim of identity theft

  • Don’t carry your Social Security card or any documents that include your Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN).
  • Don’t give a business your SSN or ITIN to anyone who asks. Give it only when required.
  • Protect your financial information.
  • Check your credit report every 12 months.
  • Review your Social Security Administration earnings statement annually.
  • Secure personal information in your home.
  • Protect your personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for Internet accounts.
  • Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.

Know the warning signs

Be alert to possible tax-related identity theft if you receive a notice from the IRS or learn from your tax professional that:

  • More than one tax return was filed for you;
  • You owe additional tax, have a refund offset or have had collection actions taken against you for a year you did not file a tax return;
  • IRS records indicate you received more wages than you actually earned; or
  • Your state or federal benefits were reduced or canceled because the agency received information reporting an income change.

Steps for victims of tax-related identity theft

  • All victims of identity theft should follow the recommendations of the Federal Trade Commission: File a report with the local police.
  • File a complaint with the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338 or TTY 866-653-4261.
  • Contact one of the three major credit bureaus to place a "fraud alert" on your account:
  • Close any accounts that have been tampered with or opened fraudulently.

If your SSN has been compromised and you know or suspect you may be a victim of tax-related identity theft, take these additional steps:

  • Respond immediately to any IRS notice; call the number provided.
  • Complete IRS Form 14039, Identity Theft Affidavit. Use a fillable form at IRS.gov, print, then mail or fax according to instructions.
  • Continue to pay your taxes and file your tax return, even if you must do so by paper.
  • If you previously contacted the IRS and did not have a resolution, contact the Identity Protection Specialized Unit at 800-908-4490.

The IRS says it has reduced the time it takes to resolve identity theft cases, which can be extremely complex cases. A typical case can take about 120 days to resolve. If you are unable to get your issue resolved and are experiencing financial difficulties, contact the Taxpayer Advocate Service toll-free at 877-777-4778.