Hyden, Miron & Foster, PLLC Law Blog

Friday, March 6, 2015

Effects of a Fraudulent Tax Return

The filing of fraudulent tax returns is an increasingly common form of identity theft. Thieves file a fake return in the victim’s name in order to receive a refund check. Both federal and state tax authorities are dealing with this problem and trying to come up with a solution.

If you are the victim of identity theft and a fraudulent tax return has been filed in your name, it may make the process of filing your taxes and collecting a refund more lengthy and difficult. Identity theft victims may need to wait months and sometimes years to have their refunds restored. Reduced IRS funding and staff levels could result in victims waiting even longer this year.

The FBI is investigating how fraudulent returns were filed in 19 states through TurboTax software. Intuit, Inc., manufacturer of the software, temporarily stopped sending state returns earlier this month after learning of attempts to use fraudulent identification information. In Arkansas, there has been no fraud yet detected, but a review of filed returns continues. Still, it has been reported that the Arkansas Department of Finance and Administration is accepting returns from TurboTax.

Intuit claims its system was not breached and that the stolen information came from other sources. The information could have come from various incidents of widespread hacking into millions of accounts held by retail chains and health insurance companies reported over the last couple of years. Once a Social Security number is obtained, creating fake W-2s is relatively easy because of personal information available on social media and other websites.

This is a multi-billion dollar problem, with the IRS paying an estimated $5.2 billion in fraudulent tax refunds in the 2013 tax season (while preventing $24.2 billion more from being paid) according to the U.S. Government Accountability Office. As bad as that is, state taxing agencies are less able than the federal government to detect the fraud. 

Filing early, before the identity thieves do, is one possible remedy. After it is established that a person has been the victim of tax return theft, the IRS issues a personal identification number that changes every year.

If you have been the victim of tax fraud or have general questions about income taxes, contact the attorneys at Hyden, Miron & Foster, PLLC, at (501) 482-1787.

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