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Several States Shift to Paper Refund Checks in Anti-Fraud Effort

As the methods employed by tax scammers grow ever more sophisticated, state and federal revenue authorities continue to roll out additional, often surprisingly old-fashioned tactics designed to halt such efforts in their tracks. Specifically, 15 individual states as well as the District of Columbia have mandated the issuance of paper refund checks in cases where the associated returns have been classified as suspicious or flagged as being potentially fraudulent.

Low-tech tools may help limit tax fraud

Though countless taxpayers have come to value the ease and convenience of electronic direct deposit of tax refunds, the shift toward paper checks in cases where fraud is a possibility may be necessary in the effort to thwart the growing epidemic of tax-related identity theft. Jeff DeWitt, Chief Financial Officer for the District of Columbia explained that when a suspicious return is flagged the issuance of a paper check necessitates that an actual person at a known physical location must receive the funds. This in turn could potentially aid in the detection and eradication of criminal activity in such cases.

Potential hallmarks of fraudulent returns

While each jurisdiction has its own criteria for flagging returns as unusual, some of the more typical factors used include the presence of a new or different mailing address than the one previously associated with an account and a change in bank account designation for direct deposit of refunds.

The timing of a return characterized by other questionable elements may also lead to a heightened suspicion in some cases, given that the lion’s share of tax fraud tends to take place during the initial weeks and months of the tax season. This is because fraudulent actors prefer to submit fake returns as early as possible so that refunds can be obtained before the true taxpayer gets around to filing.

Identity theft warning signs for taxpayers

It is incumbent on all taxpayers to remain vigilant when it comes to the signs of identity theft and to take swift action once a problem becomes apparent. Critical alarm bells include:

  • Information indicating that multiple returns were filed in a taxpayer’s name
  • A taxing authority takes collection action, issues an additional assessment or offsets a refund for a year in which a return was not filed by the taxpayer
  • State or federal entitlement benefits were eliminated or reduced due to a reported income change that did not actually occur
  • IRS records reveal inconsistencies in income reported vs income actually received by the taxpayer

Proactive prevention of identity theft

Because untangling the effects of identity theft after the fact can be a time-consuming, frustrating process, it is far better to take steps to prevent such fraud from happening in the first place. The Internal Revenue Service recommends that taxpayers follow a few simple tips, including:

  • Never carrying Social Security cards or related documents
  • Routinely checking information on credit reports
  • Providing Social Security numbers or Individual Taxpayer Identification numbers only to known parties and only when necessary
  • Diligently reviewing annual Social Security Administration earnings statements
  • Protecting personal computer systems and devices with anti-virus software, updated passwords and firewalls

Trusted guidance for taxpayers across the Mid-Atlantic region

At Rosenberg Martin Greenberg, we pride ourselves on our ability to keep abreast of initiatives launched by local, state and federal taxing agencies designed to limit identity theft while maximizing revenue. As such, we are uniquely positioned to provide the insights and advice necessary for our clients to achieve full compliance with current rules and engage in effective planning for the future. For assistance with your specific tax concerns, we invite you to schedule a consultation with a Maryland tax attorney by contacting us today.

Additional “tax fraud prevention” resources

  1. Baltimore Sun, As tax season approaches, regulators warn of fraud and identity theft, http://www.baltimoresun.com/business/bs-bz-tax-fraud-summit-20170119-story.html
  2. Internal Revenue Service, Identity Theft Information for Taxpayers and Victims, https://www.irs.gov/uac/newsroom/identity-theft-information-for-taxpayers-and-victims
  3. Benzinga, How to Protect Your Identity and Assets From Tax Fraud, https://www.benzinga.com/general/education/17/03/9142342/how-to-protect-your-identity-and-assets-from-tax-fraud
  4. Government Technology, States Shun Paperless Refunds to Fight Tax Fraud, http://www.govtech.com/security/States-Shun-Paperless-Refunds-to-Fight-Tax-Fraud.html

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