Tax man cometh – Whose Identity is it anyways?

If you are like me, I am sure you waited until the very last minute, milking every second of it, before you filed your taxes last week. Now that it is all taken care of, I want to talk about a video that I happen
to watch on CNBC about how an innovative tax scam is evolving. This is about how any individual who is filing tax can be scammed, so you better read up. (No I don’t have a solution that I want to sell you and make money; just being a good citizen educating others who follow my blog).

First of all, I was sitting there and watching on how that is done, CNBC was pretty much giving away step by step instructions on how to do it and wondering; so why is CNBC broadcasting it to the whole world. Much same way as Discovery channel would broadcast our weapons capabilities to our enemies. Anyways, this simple scheme works like this.

The Identity thieves are getting bolder and smarter these days. They gave up on applying for credit cards and loans using your name now that you can freeze your credit or have an alert set notifying you when suspicious activity happens using your name. Unfortunately, they are going after the IRS inefficiencies and lack of security verification, using their easy exploitation that occurs once each year.

What is shocking is that IRS requires you to have ONLY Name, SS#, DOB to file a tax return. That is it, mama mia!. They don’t check if the filing address was same as last year (or years), why your filing status has changed suddenly, why you don’t have proper W2 filing information, why your dependents have changed, etc. Maybe it is just me but when I see a tax return with every information from last year has changed shouldn’t that flag something for them?. Thieves have people working for them where they pick up this information such as hospitals, car dealerships, etc., but of course these are easy pieces of information that you can even buy as a list from online sources. Worst thing is that if they target the dead, active military service personnel, or people abroad then it can be months or years before anyone can find out. The thieves then make up income, withholding taxes, and deductions and have the refund wired to a pre-paid debit card that can be used in retail stores and banks to cash out. Contrary to what people think IRS takes days, or months before they verify/ match up the income stated in your tax return. At that time, neither IRS nor you have means to trace these guys. What is worse IRS thinks you owe them that money as they supposedly paid it out to you, ouch!

According to IRS, they stopped about 200,000 returns worth $1.15 B with questionable return submissions. Imagine how much slipped through. This is all because of IRS inability to verify the Identity. Identity is the main cause for this fraud. Wow!. Fair enough that IRS has to process about 145 million tax returns with about 110 million refund for requests, but come on, with about 75% of the population filing electronically how difficult it is to do a colon search on the rest 25%?. (BTW, if you file electronically they ask you for information from last year tax returns before they accept it. But the problem is if yours was already filed by an Identity thief as a paper return you can’t file at this point, so you are scrutinized but they are not – double whammy huh?).

Why is it so easy for the Identity thieves to do this.

Hard to detect, Easy to cheat, Takes months before the issue is found, Thieves know the loop holes in our system.

Fix: Have a government mandated universal identity system with bullet proof detection. (ya right, like that is going to happen).

Right now it is done mostly by small time scammers, just imagine if a well organized crime gang or a foreign government funded group picks this up. We will all be screwed.

http://www.miamiherald.com/2012/04/16/2752607/tax-fraud-by-identity-theft-a.html
http://www.cnn.com/2012/03/20/us/tax-refund-scam/index.html http://www.cnn.com/2012/03/20/us/tax-refund-scam/index.htmlhttp://www.cnn.com/2012/03/20/us/tax-refund-scam/index.htmlvvv

How this could be fixed?. Well very simple,
1. In Tax returns ask for something from last year only you would know – such as your AGI, your total deductions or even your refund amount.
2. Mail the check to the address as of last year’s return. If the address given is other than last years then put them on suspend.
3. Debit only to last year’s bank account and stop fly by night refund activities such as debit card scheme.

Unfortunately, IRS is not doing any of this. I can think of a roundabout way this can be prevented, but would love to hear from you all, if there is a way we all can benefit by stopping these identity thieves.

Let me know your thoughts and save the fellow geeks from losing their hard earned money.

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About Andy Thurai
This blog is published by Andy Thurai, Program Director - API Economy, IoT, Connected cloud solutions with IBM. The views expressed here are my own and not of my employer. Please feel free to comment or engage in a stimulating conversation, but please keep it professional. I can be reached via the “Contact Me” page here. You can also find me on LinkedIn or on Twitter @AndyThurai

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