The stories you want. The opinions that matter.
No, thanks
Tag: tax season
E-File Fraud: Identity Thieves Filing Taxes To Steal Refunds

E-File Fraud: Identity Thieves Filing Taxes To Steal Refunds

By George Avalos, San Jose Mercury News (TNS)

MOUNTAIN VIEW, Calif. — By its very nature, tax season unleashes a certain amount of angst, but this year may produce a higher level of foreboding due to a slew of data breaches that have imperiled electronic filing of tax returns.

“Tax fraud this year is very prevalent, primarily because of these recent high-profile data breaches,” said Julie Miller, a spokeswoman for Intuit, a Mountain View software maker whose signature products include the TurboTax program. “We are seeing tax refund fraud being driven by identify theft. That has implications for people who use TurboTax online or any online tax preparation.”

Scammers are using Social Security numbers and other information collected in data breaches to steal a person’s identity and file for their tax return. Frequently, the first time that a taxpayer becomes aware that their data has been compromised is after they file their return, are waiting for a refund, and receive a notice from the IRS that somebody has already filed their tax return.

“Going back to at least 2012, tax refund fraud is the biggest category of identify fraud reported to the Federal Trade Commission,” said John Breyault, a vice president with the National Consumers League. “We are very concerned about the connection between identify theft and tax fraud. There is no foolproof way to avoid this. That’s why it’s such a popular crime.”

In 2014, more than 1,500 data breaches led to 1 billion records being compromised worldwide, according to a recent report by Netherlands-based Gemalto, a data security firm. That represented a 49 percent increase in data breaches and a 78 percent increase in the number of records that were lost or stolen worldwide, Gemalto reported in its Breach Level Index for 2014.

“Maybe the worst incident was the huge Anthem data breach,” said Paul Stephens, director of policy and advocacy with the San Diego-based Privacy Rights Clearinghouse, a nonprofit group. “That breach provided sufficient info that anyone could file a tax return for any individual whose data was compromised.”

Potential security issues aren’t stopping most Americans from filing their taxes electronically, though. The IRS said that 86 percent of federal tax returns were filed electronically last year, after steady gains in the past decade: 2005 was the first year the majority of returns were filed online, at 51.1 percent.

With so may Americans e-filing, federal tax authorities have identity theft on their radar screens in a big way, Breyault said, but tax scam crooks have begun to prospect in promising new territory.

“Tax fraud is migrating to state returns,” Breyault said. “It’s like squeezing a balloon. You squeeze harder on one end, and the problems get bigger at the other end.”

Intuit was forced to shut down TurboTax service for almost 24 hours in February — just a day after the Anthem hack was originally reported — when states complained to the company about a large number of fraudulent returns. The company worked with Palo Alto security startup Palantir to develop security procedures to block such filings.

“This year on TurboTax, we have included additional account and security methods, such as multi-factor authentication when you log in,” Miller said. “If you are an existing customer, you will have additional fraud controls in place to protect your information.”

Experts say the hazards posed by tax fraud thieves are acute enough that they urge people to file their returns as early as possible during the tax season, especially if a taxpayer anticipates a refund.

“These thieves are really smart, and really crooked,” said Kevin McCormally, editorial director with Kiplinger’s, a financial publication. “The IRS says that in 2013, it paid out $6 billion in fraudulent returns.”

Fraud activity is pernicious enough that Kiplinger’s has even offered a draconian suggestion to help ward off the tax crooks: Try not
to receive a refund.

“You can fix your withholding so you don’t get a refund,” McCormally said. “It’s better to get your money when you earn it, rather than give it to the IRS interest free.”

Kiplinger offers a calculator on its website so you can craft a guesstimate about how many exemptions to take in order to break even or owe a small amount to the IRS on your income taxes.

The IRS recently convened an industry summit to address the issue of the cyber breaches and launch a system of industry standards and data reporting, a group that included Intuit, Miller said.

“Clearly this will be an ongoing effort to fight tax fraud and continue to evolve our security measures as the bad guys get smarter,” Miller said.

(c)2015 San Jose Mercury News (San Jose, Calif.), Distributed by Tribune Content Agency, LLC

Photo: Laura Gilmore via Flickr

As E-Filing Spreads, Tax Seasons Speeds Up

As E-Filing Spreads, Tax Seasons Speeds Up

By Elaine S. Povich, Stateline.org

You can’t blame Minnesota taxpayers for being confused this tax season. The eleventh-hour addition of 10 new tax credits has flummoxed many of them, even as most other states report routine filings with a significant uptick in electronic submissions.

The Minnesota situation is an anomaly in a tax season that is breaking records in many states for the swiftness of electronic filings and refunds. As the last two weeks of tax filing got underway, states were taking in record numbers of electronic forms and, as a result, getting refunds out faster, according to a sampling of state officials and the Federation of Tax Administrators.

So far, 93 percent of state individual income tax returns have been electronic, according to Ronald Alt, a researcher at the federation. Overall, Alt said, the number of electronic returns is up 4 percent over last year as of mid-March. The total number of returns processed up to this point also is up 3 percent. People who wait until the last two weeks to file tend to do so on paper.

The state filings largely correspond to the federal filings, because most taxpayers prepare state and federal returns at the same time. The Internal Revenue Service reported that as of March 28, 91 percent of the 82.4 million federal returns filed were electronic, up nearly 2 percent from the same point last year. The IRS expects to receive about 148 million individual income tax returns this year and projects that 23 million returns will be on paper, down from last year’s total of 25 million paper returns.

Surveying a representative sample of states, the Federation of Tax Administrators found a “stable filing season that is following last year’s pattern. Nothing is popping out as being different, other than the small but inexorable drop in paper returns,” said spokeswoman Verenda Smith.

For example, the survey showed that in California, electronic filing is up 6 percent from this time last year, while paper returns are up 2 percent. Maryland showed a 4 percent decline in paper returns and a 2 percent uptick in electronic filing. New Jersey’s paper returns are down 21 percent and electronic returns are up 4 percent from the same time last year. The dramatic decline in paper returns in New Jersey is partly attributable to a small sample size, Smith said.

New York’s e-filing is up 5 percent compared to last year, according to Geoffrey Gloak, spokesman for the New York Department of Revenue, and the number of refunds is up 25 percent compared to this time last year, he said. The state issued 3.9 million refunds totaling about $3.5 billion as of Monday. The average refund is $879.

Gloak also pointed out that 85 percent of New York taxpayers are eligible to file their state returns for free, using the state’s “Free File” website. All but half a dozen states allow taxpayers to file electronically, either on free state-supported websites or through partnerships with commercial tax preparation software companies, according to the FTA. Many of the commercial sites provide advice to filers, but the state sites do not.

In March, Minnesota Gov. Mark Dayton and the state legislature threw a monkey wrench into the tax filing machine by passing 10 new 2013 tax credits. Now tax preparers, tax officials and ordinary Minnesotans are scrambling to reconcile returns with the new laws, which will affect about 300,000 filers.

Dayton, a Democrat, signed the bill March 21. State officials contacted the tax software vendors and preparers within 24 hours. The department wrote new software by March 28 and got it to the software vendors, who updated their software that weekend. The programs were tested March 31 and April 1. “By Tuesday afternoon (April 2) we had everything in place,” said Myron Frans, the state’s commissioner of revenue. “At 11 a.m., the governor and I said, ‘Go ahead and file now.'”

Frans, who has been in his post for three years, said the scramble to update the tax system was unprecedented. “I have talked to a number of people who have been around the department a long time,” he said. “No one can recall making changes to the filing system this late.”

Fortunately, Frans said, the changes essentially align Minnesota’s tax credits with federal credits, which made his job easier. For example, a schoolteacher who qualifies for a federal tax credit for school supplies she bought for her students now qualifies for a state tax credit of the same amount.