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When Tax Fraud Won’t Go Away

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By Kelly Santos

Tax season used to be simple for David Parker. His accountant electronically filed taxes for his businesses and investments, and the refund arrived promptly in the mail.

But in the past few years, fraudsters have hit Parker again and again, despite IRS efforts to resolve the problem.

Parker is among a growing number of taxpayers who are becoming repeat victims of tax-related identity theft. “It’s a pattern we’re seeing on the rise,” said Brett Montgomery, who helps resolve identity fraud cases for Identity Theft 911. “The IRS investigation process takes so long to run its course, that victims are getting hit year after year. It’s a vicious cycle.”

The IRS has 210 days to contact victims after they submit a fraud complaint. If a refund or a letter of intent isn’t issued at that time, victims can petition for a referral to a case manager. The first referral request has a 45-day window. If victims don’t receive a response, they can request a second referral, which has a 30-day turnaround time. The third referral has a 10-day window.

That means some victims can go as long as 300 days without hearing from the IRS.

“There is almost nothing the taxpayer can do to speed things along,” said Vicki Volkert, a fraud investigator at Identity Theft 911. “And once you are working with the IRS to address the fraud, if something fails along the way — if the taxpayer’s record isn’t updated with the correct address, for example — it can derail the whole process. Anything missed can create another problem.”

In Parker’s case, his personally identifiable information (PII) was stolen when there was a break-in at his insurance broker’s office. He suspects that fraudsters used his PII from that event to file a fraudulent return before he filed in 2010, and a refund was sent to the thieves. It happened again in 2011, although the IRS had assured Parker otherwise because his account was flagged. When he tried to resolve the matter on his own, he had difficulty reaching two case workers assigned to him. They didn’t return his voicemail messages. Every time Parker contacted the IRS, he said, “It was like starting all over again.”

Because it was a case of double-trouble fraud, it required immediate and drastic measures. Parker’s credit files were flagged with a seven-year fraud alert, to tell creditors that he was a victim of identity theft and to verify with him all applications for credit. He also did the following:

  • Filed a police report
  • Filed an affidavit of identity fraud with the U.S. Department of Commerce
  • Contacted the Social Security Administration to correct his earnings statements
  • Contacted all three credit bureaus
  • Filed a fraud alert with the National Banking Service

At some point, the IRS claimed that Parker owed them $4,300. “That was the real kicker,” Parker said. “That was the amount, with interest, that they wrongfully refunded to whoever stole my identity.”

Ultimately, Parker got in contact with a public tax advocate, who finally got Parker’s name — and tax record — cleared. His problem took a year and half to fix.

Though it could create procedural challenges for the IRS and the U.S. Postal Service, Parker suggested that Congress could solve the problem by simply refusing to issue refunds before April 15. That way they could see who has duplicate returns filed, and investigate before signing over checks to the bad guys, he said.

In the meantime, Volkert suggests victims of repeated fraud file their taxes early — in January or February — to beat criminals to the punch. Procrastinating on your taxes gives thieves plenty of time to pick their targets.

Taxpayers who suspect they may be victims of tax-related identity theft are encouraged to call their providers. A bank, credit union, insurance company or membership organization may provide free identity management services.

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Image: www.seniorliving.org, via Flickr

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