Fraud Files: When Tax Fraud Won’t Go Away

Tuesday, December 11, 2012

Kelly Colgan


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, a team leader in IDentity Theft 911’s Fraud Resolution Center. “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 him 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.”

Fortunately, his insurance broker received data breach coverage, which provided victims with identity management services from IDentity Theft 911. Volkert dedicated herself to his case until it was resolved. Because it was a case of double-trouble fraud, it required immediate and drastic measures. Volkert activated a seven-year fraud alert on Parker’s credit files, began coordinating joint calls to the IRS and held regular calls with Parker every six weeks. She also encouraged him to:

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

The routine meetings helped Volkert stay on top of new developments, such as the time 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, Volkert helped Parker get in contact with a public tax advocate, who finally got Parker’s name—and tax record—cleared. His case took a year and half to resolve.

“Vicki explained every step—even provided necessary contact information for different organizations—and supported me during calls to the IRS,” Parker said. “She and IDentity Theft 911 were invaluable to resolving this issue. They supported me for well over a year and continue to monitor my accounts.”

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 from IDentity Theft 911.

“When your identity is stolen, you have no idea how and where to start the complicated process of remediation and preventing further damage to your identity,” Parker said. “This is a situation that is unlike anything you have ever gone through and it requires help from an expert, knowledgeable source.”

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