The IRS Dirty Dozen 2016, #1: Identity Theft

The IRS recently released its annual “Dirty Dozen” list of scams that taxpayers should look out for this tax season. There is nothing surprising on this year’s list, most of which repeats the 2015 items we reviewed in depth last year. Let’s take a fresh look at the IRS warnings, which taxpayers (and tax abusers) should bear in mind not only in the coming months, but year-round. 

First up is identity theft, an item we see on this list every year. It appears that identity thieves are becoming increasingly aggressive – just last month in Atlanta, Georgia, six individuals were indicted for stealing 250,000 identities, filing more than 2,900 false tax returns, and claiming more than $25 million in fraudulent refunds. They stole the personal information for the tax returns from a database owned by a company that conducts pre-employment and background checks.

Other identity thieves have managed to break into the IRS computer systems to gain access to E-file PINS. Apparently the latest attempt did not result in any compromised personal data and the affected taxpayers are being notified by mail. 

In most cases of identity theft, however, personal information is not obtained from databases. Personal documents are usually retrieved from dumpsters, responses to unsolicited credit applications, hacking into emails and mobile phones, and old-fashioned shoulder surfing (someone looking over your shoulder as you fill out a form in a crowded place, enter a PIN at an ATM, etc.)

Protecting personal information in 2016

Keep in mind that access to a person’s social security number, date of birth and signature is enough to put an identity thief in business. It is therefore crucial for taxpayers to be on the defensive when it comes to personal information and financial documents. Using strong passwords and periodically checking credit reports are no longer sufficient. Taxpayers must be able to identify phishing scams (see post #3 of this series) and place extra protections on their mobile devices – this is especially crucial for those who bank through their phones and iPads. 

Combating tax refund fraud by filing early 

Refund fraud generally occurs early in the tax filing season and is generally not detected until the taxpayer files his or her tax return. The legitimate return is rejected because the social security number has already been used. Although the December 19, 2015 omnibus spending bill moved up the date for employers to report W2 and 1099 data to the IRS and Social Security Administration, that provision does not take effect until January 31, 2017. So at least for this tax season, taxpayers are being advised to file their returns as soon as possible. 

The penalties for identity fraud schemes are severe

These violations are felonies that carry substantial penalties and up to 30 years’ imprisonment. Note that the omnibus spending bill also authorizes additional funding in 2016 for the prevention of tax-related identity theft and refund fraud, and the government is cracking down on identity thieves.

Identity theft is illegal and is simply not worth the effort. If, however, you are already under investigation or have been charged with an identity theft crime, you will need a highly experienced federal criminal tax attorney to handle your case. Contact the tax firm of Moskowitz, LLP immediately.