Identity theft can be a precursor to tax refund fraud because individual income tax returns filed in the US are tracked and processed by Taxpayer Identification Numbers (i.e. Social Security numbers) and the individual taxpayer names associated with these numbers. Fraudulent actors obtain TINs through various methods of identity theft, including phishing schemes and the establishment of fraudulent tax preparation businesses.
Although tax refund fraud has been around for decades, the speedy direct deposits returns and the option of having refunds issued on a prepaid card are making it easier for criminals to pull off the fraud. Last year, the IRS identified at least 582,000 taxpayers who were the victims of identity theft, which is more than double the amount from only three years prior.
First, thieves obtain Social Security numbers and other personal information from insiders at hospitals, doctor’s offices, car dealerships or anywhere that information is stored. Then, they file online tax returns using the real taxpayer’s name and a fictitious income. In most cases, the criminals buy a prepaid card so the IRS can issue the refund on that card, although some thieves have also gotten their returns on actual Treasury checks.
The IRS has significantly increased the amount of resources they have devoted to identity theft. Also, last year the IRS began issuing an Identity Protection Personal Identification Number to victims of identity theft when filing their future returns.
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