IRS Form 14039
Like you, I’ve heard of tax refund fraud. I’ve read about it in the professional journals and dismissed it as something not really worthy of further exploration. Why? Well, that happens to other people, right? It hasn’t and will never happen to me or one of my clients. We are safe, ensure our client’s information is secure, and take extraordinary steps to maintain all records in a confidential manner. All that safety, all that care…
In the 2013 tax filing season, we’ve had 5 different clients who have become victims of tax refund fraud. This is nothing more than identity theft albeit at a singular level. While the theft of our clients’ information was (thankfully!) not the result of our systems or software, dealing with this issue on behalf of a client is a colossal pain. While this article is not directed to the specifics of dealing with a tax refund fraud situation, you can begin with Form 14039, Identity Theft Affidavit, if you or your clients find themselves victims.
The IRS Steps In
While the Service can be really slow to adapt to technological and other meaty issues, they recently made a step in the right direction. In their announcement, the IRS indicated that, beginning in January 2015, the IRS will limit the number of refunds that can be electronically deposited into a single depository account. In addition, this new procedure will apply to loading refunds on pre-paid debit cards as well.
How does this help?
Unless you have a family with multiple refunds for your children coming to your bank account, this new procedure will have no impact on the electronic direct deposit of refunds for you or your clients. But, if you’re a bad guy stealing social security numbers and filing bogus tax returns, the IRS just made your job tougher.
Most fraudsters in this space use a handful of bank accounts to accept the sham refunds from the fraudulent tax returns they file. These are guys and gals defrauding perhaps hundreds of taxpayers per year. Now, with the new procedure limiting the crooks to only 3 direct deposit refunds into each bank account, they are going to have to spend the time to set up 20, 50, or even 100 bank accounts to make it work. While there will be those that will go to the hassle to set up all these accounts (or have straw accounts set up by mules), it will slow the traffic at some level. A secondary advantage of this procedure is the forensic benefit. If a bank has three deposits in a bank account with a subsequent closing, a trail will be created for authorities to track the fraudster. It’s not foolproof, but it is a start.
The IRS also has indicated that these new rules will protect taxpayers from unethical tax preparers who obtain payment for tax return preparation by depositing part of their clients’ refunds into their own bank accounts.
The bottom line is simply this…you and your clients face the threat of identity theft. If you’re a tax preparer, do some homework and prepare yourself for this incredibly annoying pain.