May 9, 2013

IRS Electronic Filing Initiative Results in Increase in Fraudulent Income Tax Return Filings

In recent years, the IRS has encouraged Americans to electronically file their tax returns, and CPA firms are required to electronically file for their clients.  Filing tax returns electronically is fast and easy.  E-filing, as it is known, is appealing because it provides confirmation that the return was filed on time and, when combined with direct deposit, can result in a refund as soon as seven days later.

However, the IRS and taxpayers alike have discovered one huge drawback to the new system.  It makes filing fraudulent returns and obtaining refunds easier than ever.  During 2011 alone, there were more than 1.1 million cases of tax-identity theft.  Tax-identity theft, refund fraud, and return-preparer fraud are growing ever more common, and are difficult to deter.  In fact, the first time it may be noticed (by either the IRS or the taxpayer) is when a legitimate taxpayer tries to file their return and learns that a fraudulent return has already been filed with their information and social security number.  This is just what happened to one of our clients recently.  They received a letter from the IRS saying that their return was being reviewed by the IRS and that they would not receive their requested refund.  Problem was – the client had not yet filed their return!  It is not always clear or simple to resolve these issues with the IRS, although they now have a unit set up to help with the process.

The most important thing for a taxpayer is to be aware that this has happened.  So, if you receive a notice from the IRS – open it right away.  Now, more than ever, you need to look at the correspondence from the IRS and either handle matters yourself or contact your tax preparer to obtain their help.  If this happens to you, our tax professionals at Maddox Thomson & Associates are equipped to help you, and will guide you every step of the way, making it as painless a process as possible.