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Monthly Archives: January 2016

Avoiding the Growing Problem of Tax ID Theft Scams

Some taxpayers will have to wait longer than usual to receive their tax refunds due to increased measures by the IRS and state tax authorities to catch tax fraud. These organizations are also partnering with tax preparation companies to share information about suspicious tax returns so that they can detect the fraud as it happens. Some states have even requested that employers distribute their W2 forms earlier so data is available to verify the legitimacy of tax returns that were filed early.

These measures are designed to combat the growing issue of tax refund fraud. In 2013, the IRS mistakenly paid out $5.2 billion worth of refunds to identity thieves, and H&R Block estimates that the number of refunds stolen through fraudulent e-filing has roughly doubled since then.1 This past filing season, the IRS detected and stopped nearly 3 million fraudulent returns before they were processed, an increase of roughly 30% from the year before according to testimony given to the Senate Finance Committee.2 It is no surprise that tax-related identity theft is now the most common complaint filed to the Federal Trade Commission, making up roughly a third of all complaints submitted to the FTC according to the Arizona Republic.

Financial Management in Healthcare

Tax refunds are an easy target for thieves. All they need to file a false return is a name, Social Security number and date of birth. Since these scams often revolve around electronic filing, there is no paper trail leading back to the person committing the scam and it can be repeated over and over again at very little cost. Continue reading for suggestions on how to avoid being victimized by this scam, and how to detect whether a fraudulent tax return has been filed on your behalf.

Infographic: Protect Your Refund and Your Identity

Keeping Confidential Information Safe

The easiest way to avoid being a victim of refund fraud is to simply file your return as early as possible. Once the IRS processes a return with your social security number it will reject any duplicates. Other precautions such as receiving your tax forms via e-delivery and ensuring your wi-fi network is secure can greatly reduce your odds of falling prey to this kind of theft.

The IRS is also doing their part to verify taxpayer information and make it more difficult for thieves to steal refunds. They are now monitoring over 20 new data elements on each tax return to reduce fraudulent returns. The measures include reviewing the transmission of electronically-filed tax returns, including any improper or repetitive use of Internet Protocol numbers. The IRS will also be taking additional measures to verify email addresses, with tactics similar to the confirmation methods banks are currently using.

Taxpayers in Florida, Georgia and Washington, D.C. can participate in a pilot program where they establish a six-digit PIN to add an additional layer of protection to their account, even if they haven’t yet been a victim of identity theft. Other steps you can take to minimize risk include changing the password every year on the account you use to file, only giving personal information online to encrypted websites with an “https” address and using computer security software that includes an electronic firewall, virus protection and file encryption.

How to Detect and Report Phony Tax Returns

Typically, victims of taxpayer ID theft and refund fraud learn about their predicament when their tax return is rejected because ID theft criminals filed first. When the real taxpayers file, their refunds are not paid until the IRS resolves their individual case. Resolving this dispute can quickly become a paperwork nightmare for the legitimate filer. Other red flags include receiving a notice from the IRS or Department of Revenue stating that you received wages from an employer unknown to you, or if collection actions are being taken against you for a year which you did not file a tax return or owe money.

If you suspect you are a victim, it is important to respond immediately to any IRS notice and comply with their instructions. Next, you will want to file an FTC complaint and contact one of the three credit bureaus to place a fraud alert on your account. Be sure to close any financial accounts opened without your permission since your identity was compromised. Finally, you should complete IRS Form 14039, Identity Theft Affidavit to formally notify them about the theft as stated in the IRS Taxpayer Guide to Identity Theft.

Just recently, the IRS started letting taxpayers who have had fraudulent tax returns filed and accepted in their name request a copy of the fake return. Victims receive redacted copies of the forms, but the documents should still include enough details to help taxpayers figure out how much of their personal information was stolen. To receive a copy of the return, taxpayers need to write a letter to the IRS providing their name, address, social security number and proof of identity (such as a copy of a driver’s license). The IRS will acknowledge requests within 30 days and respond within 90 days.

Tax fraud attacks are constantly evolving to stay a step ahead of the fraud filters designed to identify and stop false returns. Government bodies and tax preparation companies have been working together to develop processes for sharing information that can be used to authenticate a taxpayer’s information. Even with these increased measures, most people can anticipate receiving their refunds in the typical three weeks or less time frame. Those who choose to file electronically and utilize direct deposit will likely receive their refund even sooner than that.


Have Questions?

This article is for informational purposes only and should not be construed as tax advice. Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.
Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide tax advice or services. Please consult the appropriate professional regarding your tax planning needs.
  1. Dan Kadlec “This Is the Best Way to Protect Against Soaring Tax Refund Fraud” (January 2016). http://time.com/money/4181191/protect-against-soaring-tax-refund-fraud/
  2. Kevin McCoy “IRS Seeks Taxpayer Help Battling Tax Refund Fraud” (November 2015). http://www.usatoday.com/story/money/2015/11/19/irs-awareness-campaign-identity-theft/76045778/

Three Questions to Ask Yourself When Buying a Home

For many, buying a home is one of the largest purchases they’ll make. It’s a substantial life event and taking on a mortgage is a large responsibility—not to mention the costs of maintenance around the house, projects, updates, etc. Here are three questions to ask yourself before you commit to buying a new home.

  • Am I sure this is my long-term employer? Many residents and fellows headed into practice think they should immediately buy a home. In my experience, unless there are extenuating circumstances, renting allows you to be sure you are happy with your new employer and won’t need to move. Renting for 6 months also allows you to get used to the city and the neighborhood—especially if you are unfamiliar—to make sure you know where you want to buy.
  • Is the mortgage reasonable, given other competing goals? Lenders will typically approve a doctor for a large mortgage and realtors will often show a doctor larger and more expensive homes. While the large, expensive home in the exclusive neighborhood may be the right fit for you, make sure the mortgage, property taxes and/or neighborhood fees won’t put you in a situation where you may feel or literally be house poor.
  • Is the home in an area that may impact resale value? I have a client who bought a home in an area of Houston that was impacted by a hurricane and subsequent flooding. While the client’s home did not take on water, the garage flooded and many of the homes in the area are now boarded up, making the neighborhood even less appealing, so the client is unable to sell the home and is moving to another area of the country. A hurricane is definitely an extreme; however, there are other factors that could impact your ability to sell. Is your home too close to a freeway, a waste treatment facility, etc.? Before you buy, visit the home at different times of the day and drive around the neighborhood to make sure there is nothing that stands out as a possible detractor to a future sale.

Buying a home isn’t a decision to be taken lightly. Be sure about your employer, the terms of the mortgage and the location of the home before you decide to dive in.

Is a new home on your radar? Let’s talk through the best course of action for your unique situation.

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.

The views and opinions expressed in this article are those of the author, are for educational purposes only and do not necessarily reflect the official policy or position of Larson Financial Group, LLC or any of its affiliates.