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The Ongoing Battle with Tax Refund Hackers



Technology over the last century has progressed in leaps and bounds; gadgets and certain tools help make our lives easier. Although technology can make life simpler, there is a dark side to it as well. According to the Federal Trade Commission (FTC), the most common complaint people in America have with technology this year is once again identity theft.

If anything like this happens to you, it can be a scary thing to have to deal with, no matter how big or small the incident. If a criminal were able to get his or her hands on your personal informational, it could have a significant effect on you financially.

One common instance of identity theft is when someone files a tax return using your name and receives a refund, your refund, before you figure out what occurred. While there are certain security measurements in place, there are some hackers capable of bypassing them.

The Federal Trade Commission received over 160,000 complaints revolving issues like this back in 2013. In 2014 alone, hackers stole over six and a half million Social Security numbers. These numbers are then sold online via black markets and sell quickly. Undercover agents found that the people who steal your SSN will sell them for cheap ($3 to $5) then provide your name or other personal information along with it.

Sadly, a fraudster can pull off tax fraud so long as they have two things: your social security number and your name. Most of them will use a false income report on a W-2 form, and just like that they have filed your taxes and stolen your refund. After someone takes your tax refund, you will need all the luck in the world with you to get it back. The minute you find out and report it, the IRS will halt your refunds and investigate the matter. Although they say the average time it takes to correct the issue is four months, it often takes longer than that. It could be years.

This was an ongoing problem before technology came into the picture, and now it is even easier to do today with just a few clicks. These thieves will often use tax preparation software. The forms are so easy to put together that they can file several to hundreds in a day if they felt like it.

Completing tax fraud online also somewhat protects them from dealing directly with the IRS. Adam Tyler, an executive at CSID, noted that the smart ones will only use Social Security Numbers within a particular state or zip code, so they do not cause the IRS to raise an eyebrow. Tyler adds cashing the refund and sneaking away is just as easy for them too. The IRS now gives the option to receive your refund through direct deposit (you would give them banking and routing information). Fraudsters can make themselves untraceable to the IRS when they use prepaid debit cards that they can toss away afterward. Although the direct deposit option was added as a way to help those who wish to avoid cashing fees, it has become the best way for thieves to take the money and run.

According to several former prosecutors who did investigate cases like this, there are virtually no consequences. Although there are fraud controls in place, there is a gap that is not working as well as it should. The biggest complication is a calendar flaw. You can file taxes the moment you receive your W-2 taxes from your workplace around the end of January. Companies are not required to deliver that documentation to the IRS until they end of spring. That means there is a gap, from February through June, giving thieves the opportunity to file false numbers the IRS is not able to validate until it is far too late.

IRS Commissioner, John Koskinen, says that this calendar issue is a gap the company is hoping to close, but it will take legislation from Congress to fulfill. The IRS is also thinking about updating their website so that you will need to enter your password to file taxes as a way to ensure the person doing it is you. Another security measurement they are adding is a six digit PIN, but that option is only accessible to fraud victims and residents in Washington, Georgia, and Florida for now. Although they would like to make the option available everywhere, it would mean a $200 million cut to their technology budget for the year.

For now, the best solution to avoid tax fraud is to sign up for the extra PIN (no matter how annoying it can be) if the option is there for you. Also, there is no better time than the soonest you can to file your taxes. The online black markets begin to heat up for Social Security Numbers around tax filing months. Hackers typically sell off they same SSN to multiple fraudsters at a time. They are aware that refunds are “first come, first serve” making them anxious to move fast. Justin Gelfand, a former prosecutor, stated that “it is nothing more than a race to file fraudulent tax returns and it is almost at the point that it begins around January annually.”

For 2016, the IRS plan to combat thieves using several methods:

  • Examine PC device identification data connected to the return's origin.
  • Capture metadata from a PC transaction allowing them to monitor any fraud related to identity theft.
  • Look at the time it takes one to finish filing for taxes.
  • Monitor transmissions of tax returns as well as any duplicate or improper use of Internet Protocol numbers (electronic address of the return's origin).

Both industry officials and the IRS stated tax software providers agreed to strengthen validation requirements for new and existing users. There will be tougher password rules that ask for a minimum of eight characters that require lowercase and uppercase letters, numbers, and special characters. There will be three security questions added and a timed lockout feature after several unsuccessful log-ins. However, even with these measures added for this upcoming tax year, the amount of tax refund fraud is expected to reach an all-time high of $21 billion. Could the amount of fraud lower in 2017 with enhanced security? We will have to wait and see.

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