According to the IRS, they paid $3.1 billion in fraudulent identity theft refunds in 2014. This is how tax refund fraud through identity theft happens.
Fraudster acquires PII
It all begins with identity theft. The identity thief acquires personally identifiable information through various clandestine means. It could be anything from buying PII through dark web transactions to mail theft to dumpster diving.
Fraudster files tax return on behalf of a victim
The identity thief impersonates as the victim, armed with all their personal information and files tax return paperwork in the victim’s name, claiming a refund. They are lucky that the legitimate return has not yet been filed. But even in cases when the return might have been filed, they would move to the next victim till they find one that has not been filed. They would do this very early in the year as most people would not be ready to file taxes early in the cycle.
IRS process tax return
If the identity thief has been able to provide all the information that IRS requires for filing a tax return, it will pass through all their checks. The IRS does not suspect any foul play and processes the tax return filed by the fraudster.
IRS issues a refund
After the successful processing of the tax return, the IRS will issue a refund. The money goes to the fraudster as per the details provided by the criminal.
Victim files their tax return
The unsuspecting victim would get ready to file their return. The victim submits their legitimate tax return not knowing that someone has already filed a tax return in their name. The victim is now in for a shock.
The IRS rejects the victim’s tax return
The IRS system rejects the return as a duplicate as a tax return has already been filed and processed for a refund.
The nightmare begins for the victim
The victim would notify IRS of the criminal act. The identity thief got what they were after – the refund money – leaving the victim and the IRS to figure out not only the monetary loss but sorting out the incorrect filing.
Data breach at Kansas led to tax refund frauds
John (name withheld due to privacy reasons), a software engineer living in Newton, MA was victim of tax refund fraud. John studied at Kansas University and worked in the state for several years before moving to Massachusetts. In 2019, while filing his taxes, he got the rejection from the IRS and had to go through the ordeal most identity theft victims have to endure. John’s identity related data was compromised when hackers breached a Kansas Department of Commerce data system. The hackers gained access to more than 5.5 million Social Security numbers and other information. The data is from websites that help connect people to jobs, such as Kansasworks.com, where members of the public seeking employment can post their resumes and search job openings.
Protect your identity from thieves
Identity theft is a serious problem in today’s increasingly complex digital world. To protect our online identity we need the 3 Ms – maximize online security, minimize information sharing and monitor our exposure. Learn more at www.besecureandsave.com.
