By now, we all know that income tax identity theft is a major problem. According to the General Accountability Office (GAO), the IRS paid out 5.8 billion dollars in bogus refunds to identity thieves for the tax year 2013 and, according to the GAO the real figure is probably significantly higher because of the difficulty of knowing how much income tax fraud remains undetected. But it is not as bad as you think. It is worse.
If you are the victim of income tax identity theft, it still takes an average of 278 days to resolve your claim and get your refund although the IRS routinely tells taxpayers that they can expect their claims to be resolved within a still too long 180 days.
Meanwhile, the Treasury Inspector General for Tax Administration (TIGTA)is warning taxpayers to be on “high alert” for scammers posing as IRS agents who call unsuspecting taxpayers and threaten them with heavy fines and even jail time if they do not immediately pay these scammers the demanded money. According to TIGTA, it has received approximately 896,000 complaints since October 2013 of these phone calls and knows of at least 5,000 victims who have paid more than 28.5 million dollars to the scammers.
So what has been the response of Congress?
In its infinite wisdom, Congress has passed legislation that requires the IRS to hire private collection agencies to go after taxpayers who owe money to the IRS. So after years of the IRS telling taxpayers that the IRS does not initiate contact with taxpayers by telephone and that therefore if someone calls you, attempting to collect money for the IRS it is a scam; now taxpayers will be receiving calls on behalf of the IRS attempting to collect overdue taxes.
This will make it much easier for the scammers to make themselves appear legitimate.
But it is worse than that.
When this law was being considered, the IRS was against it and with good reason. Using private collection agencies to collect taxes on behalf of the IRS had been done twice in the past and according to Nina Olson, the National Taxpayer Advocate at the IRS, “Twice the experiment ended in failure.” Not only did the IRS manage to collect twice as much of overdue taxes as the private collection agencies did, but having the IRS do the collecting was far less costly. So private collectors managed to collect less tax money at greater cost. The new law requires the IRS to hire private tax collectors by early March.
Do you want more bad news?
The most common way that income tax identity theft occurs is when the identity thief files an income tax return using his or her victim’s Social Security number along with a counterfeit W-2 that indicates a large refund is due. With all of the complicated actions that the IRS is trying to do to detect income tax identity theft, it is missing the simplest and most effective way to stop income tax identity theft.
Under present law, employers must file W-2s with the federal government by February 29th if the employer files paper W-2s and as late as March 31st if the employer files W-2s electronically. However, the law does not require W-2s to be filed with the IRS by those dates. Instead, they are required to be filed with the Social Security Administration (SSA). The SSA does not send these W-2s to the IRS until July so the IRS does not get around to matching the real W-2s filed by employers with those filed by individual taxpayers with their income tax returns until months after the IRS has already sent refunds based on the W-2s filed by the identity thief. It seems so simple that even a Congressman or Senator could understand it that if employers were required to file their W-2s directly with the IRS and the IRS matched the W-2s filed by employers with those filed by taxpayers before sending out refunds, income tax identity theft would be dramatically reduced.
So what did Congress do?
According to IRS Commissioner John Koskinen, “We’ve been talking with Congress for the last couple of years about it and I’m pleased that they did provide that starting next tax season – not this one – employers will be required to provide us W-2 information by the end of January.”
However, that statement is not entirely accurate if you interpret the word “us” to mean the IRS because what Congress actually did in the omnibus spending bill signed into law by President Obama on December 19, 2015 is move up the date for employers to file W-2s with the Social Security Administration to January 31st starting January 31, 2017. We still will have to wait for the SSA to forward the employer filed W-2s to the IRS before they can be matched with those filed by legitimate taxpayers and identity thieves with their tax returns. With the IRS proudly proclaiming that they will still be processing and sending out refunds for 90% of income tax returns within 21 days of filing, it is highly likely that a significant number of those refunds will be sent to identity thieves who filed phony tax returns with phony W-2s.
So what should you do?
When it comes to income tax identity theft, the best place to look for a helping hand is at the end of your own arm. You can only become a victim of income tax identity theft if the criminal files an income tax return using your Social Security number before you do so the best way to prevent that is to file your income tax return as early as possible.
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