Truth 14 Are you paying the IRS or an identity thief?

For many of us in the United States, there is no day more dreaded than April 15. Uncle Sam comes knocking, and we all starting hunting for ways to hide the money we worked so hard to earn. Of course, not everyone is running from the IRS. There are those who actually end up being owed money and look forward to filing for their tax refund. No matter what your situation, everyone faces this form of identity theft, and unlike just about every other Truth I discuss in this book, there is almost nothing you can do about it.

Why am I being audited?

You go online and find a site that claims to allow you to file your tax returns at no charge. The site is part of the IRS e-file program, which the Internal Revenue Service created to allow third-party vendors to file free and pay tax returns. The e-file program is real and does allow people who make less than $54,000 a year to file for free. It seems like a great deal and takes only a few minutes for you to fill out the online form, and just like that your tax return has been filed. If you are expecting a refund, you can also include your bank account number, allowing the IRS to directly deposit the funds right into your account.

While there are a number of these e-file Web sites that are legitimate, there are far more that are only there to commit identity theft. What’s worse is that you may not find out until the IRS comes looking for its money that the site you “filed” through was a scam. You see, when you submit your information to the fake site, it doesn’t just steal it; it actually turns around and files the return on your behalf to the IRS. The only difference is that these fake sites often change the filing to make sure that you are guaranteed to receive a generous refund, even if it’s far more than what you were legally owed.

Why would these fake sites try to get you more money? Because, of course, they have no intention of filing for the funds to be deposited into your bank account. Instead, they have the funds diverted to an account that they have set up for the attack. Now, just to add insult to injury, the IRS eventually smells a rat and comes knocking on your door. You’re responsible not only to pay back whatever the difference was in the refund, but also any interest that has compiled on that amount. In addition, you can expect the full rubber-glove treatment from the IRS and the audit it will be performing on you.

In other situations, the identity thief running the fake filing site doesn’t file at all. Instead, the thief is only interested in gaining all your confidential information to be used for other identity theft attacks. So while you are left to think your taxes have been paid and Uncle Sam is off your back for another year, in reality you’re now being sought for tax evasion and your identity has been compromised.

Again, expect big fines and more rubber-glove treatment. What’s most aggravating about these attacks is that not only are your taxes now a mess, but you will also be dealing with the destroyed credit that has been caused by the identity thief. By now, the thief has probably run up thousands of dollars of credit debt under your name.

So at this point you are probably thinking, “Note to self, don’t file online.” Well, of course, it’s not quite that simple. First, if you want to know who you can trust online, the IRS has set up a Web page of its trusted e-file vendors (www.irs.gov/efile/lists/0,,id=101223,00.html). The problem is that not all identity thieves are up to the task of making big complex Web sites and then waiting around like a spider for a fly in the hopes that you will happen to choose their fake company. Instead, they simply find other ways to gain access to your social security number (SSN), possibly using one of the many attacks listed in this book. Then they simply file on your behalf with a completely fictional tax return. Their goal, of course, is to file early and arrange the numbers for a hefty refund.

Though this type of attack has been around for a number of years, it started to get noticed in 2004 when the IRS noted a 1,000% increase in the number of fake filings between 1999 and 2003. And though the IRS continues to attempt to find ways to prevent these fake filings from happening, to date there has been no solution, and they continue to flood the IRS. In the meantime, my only recommendation is to file as early as you possibly can. If you file first, you win.

When the IRS isn’t the bad guy

In January 2008, hundreds of thousands of confused and concerned people received an email purportedly from the IRS claiming that they would be audited on their tax return this year. The recipient was instructed to follow a link to a Web site where they were to submit personal information to aid in the audit process.

Of course, the IRS would never send out an unsolicited tax-related email; this was simply another identity theft attack. In fact, the IRS has been faced with so many attacks against taxpayers that it has dedicated an entire area of its Web site to phishing and ID theft-related matters (www.irs.gov/newsroom/article/0,,id=155682,00.html).

Of course, not all tax-related identity theft attacks happen on the Internet. In fact, some of the more successful types of attacks have taken place over the phone. In 2008, the IRS had to deal with yet another situation in which imposters began a calling campaign. When the victim answered the phone, the caller explained he was with the IRS and that he had recently sent a refund check from the IRS to the victim. However, according to IRS records, the check had still not cleared, so the IRS had flagged the check as having been lost. The caller asks for the victim to instead give a bank account number where he would like the funds deposited, and the IRS will use direct deposit to transfer the funds.

Guess what? The IRS doesn’t care if you’ve cashed a refund check and would probably be grateful if you never did. If you ever receive a phone call from anyone claiming to be with the IRS or any other government service, it’s best to keep your confidential information confidential. Much like Big Brother, anyone calling you regarding real issues will already have every piece of information about you on file. There will never be a case where legitimate people will be asking you for your information.