What happens when the IRS allows returns to be filed before they receive the third party information? Quite often it can be fraud.
Have you ever received an IRS notice telling you that there is a discrepancy on your return?
Bank XYZ reported interest income of $100 and your return has $10…or something similar. They know that because they can cross check your information against the 1099’s, W-2’s, etc. filed by third parties.
Pretty good system, eh?
But what happens when the IRS allows returns to be filed before they receive the third party information? Quite often it can be fraud.
Tax fraud has reared its ugly head for the last few years.
With so many hacks into our information through banks, insurance companies and credit card firms occurring on a regular basis, our names and social security numbers are floating throughout cyberspace, no matter how careful we might have been.
Even my husband and I became victims to tax fraud a few years ago. It took eighteen months to straighten it out and get our refund, not to mention the angst that went with it. Someone had stolen my husband’s name and social security number and had filed a fraudulent return.
They input bogus W-2 information and collected a refund.
So no matter how careful you are it can happen to you.
The key for the perpetrators is to file very early on before the employers have filed their W-3 forms along with your copies of the W-2 forms.
By the time the IRS can check the information against the original documents, the thieves have direct deposited the refund and are long gone.
Nowhere was fraud more rampant than in the processing of the Earned Income Tax Credit and Additional Child Tax Credit. These credits actually result in additional money being added to your refund as they are refundable credits.
2015 IRS fruadulent refunds
According to the IRS, in 2015 there were approximately $754 million fraudulent refunds claimed on 141,000 tax returns between January through April.
That drove the Internal Revenue Service to create a Security Summit partnership in 2015 which included the IRS, state tax agencies and private sector tax industry executives. The purpose was to collaborate to create safeguards from the continuing fraud.
The Protecting Americans from Tax Hikes Act of 2015 (Path Act) was enacted December 18, 2015. That law mandates that no refund for a taxable year shall be paid to a taxpayer before February 15 if the taxpayer claimed the Earned Income Tax Credit or the Additional Child Tax Credit on their return.
The effective date is January 1, 2017.
Next- Four key takeaways reported by the IRS Commissioner on the 2016 tax season