Tax refund fraud occurs when a person submits false information to the Internal Revenue Service (IRS) with the aim of obtaining money from the treasury. Tax refund is regarded seriously and leads to serious financial consequences for the perpetrator. In cases of repeat offenses, accused persons face long jail terms. Tax refund fraud is a federal crime because the U.S. treasury suffers financial loss owing to misleading or false statements or significant omissions.
What is Tax Refund Fraud?
Tax refund fraud implies filing tax returns using false information. In many cases, tax refund fraud involves the crime of identity theft. Tax returns can be submitted online using one’s name, date of birth, and their social security number. When the return is filed, the IRS issues the refund within 30 days as provided in the law.
Stolen Identity Refund Fraud
A return can be filed with information implying that IRS owes a large refund. The money is sent before the taxpayer, whose identity has been used, or the IRS is aware of the swindle. The losses from stolen identity refund fraud (SIRF) are on the rise. IRS has little control over this form of fraud because it is difficult to change the processing and tax filing systems. Defendants who are caught in this type of fraud face charges for multiple offenses including wire fraud, and identity theft.
According to the American Institute of Certified Public Accountants, 2015 saw the leaking of over 100 million social security numbers. In February 2016, fraudsters used 460,000 stolen social security numbers to acquire e-PINs for filing fraudulent tax returns.
In order to make returns without arousing suspicion, fraudsters are creative when creating a tax payer profile. One common way is to act like they are the CFO or CEO of a company and sending correspondence to an unsuspecting employee with a request for employee data. The innocent employee will eventually send W-2 information to the fraudster. For tax fraudsters, e-filing services have made it easier to commit refund scams through automated systems.
Investigations into Tax Refund Fraud
The first measure that IRS will take when investigating a person for fraud is to pull their tax returns and send them a notice. If the offender is guilty of amounts that are less than $100,000, IRS will request that they address the issue and repay the amount immediately or face a formal investigation.
If the amount is more than $100,000, two IRS agents will approach the defaulter and question them. At this point, it is advisable to contact a tax refund fraud lawyer. IRS prosecutes 75% of the cases that it investigates; therefore, one is likely to incriminate themselves by handling fraud charges without a lawyer.
Fraud Vs Negligence
Fraud is an intentional act to defraud the IRS. Keeping two financial books, claiming you have a dependant when you are single, or using a fake social security number, are examples of fraud. However, in some cases the complexity of tax laws may cause one to make mistakes when filing returns. IRS understands that sometimes taxpayers may be negligent when filing returns. A careless mistake when making returns increases your tax bill by 20% while tax fraud results in a 75% penalty to your tax bill. Determining negligence and fraud is usually difficult for the courts and IRS.
How Does One Detect Tax Refund Fraud?
The warning signs that someone has filed returns and received a refund on your behalf are as follows:
Steps to Take in The Event of Tax Refund Fraud
If your federal tax return is rejected, file an identity theft affidavit with IRS. Fax or mail the form to the IRS together with copies of your identity like your driving license. If the IRS does not respond within 24 hours, call their hotline or report the identity theft to the federal trade commission. It is also advisable to put out a fraud alert on your credit records with the three credit bureaus TransUnion, Equifax, or Experian to prevent them from opening unauthorized accounts. Lastly, make sure you report the matter to the police.
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