An IRS January Tradition

On Thursday the IRS announced a massive nation-wide identity theft crackdown, and I believe I’m starting to see a pattern now. Around the end of December each year we tend to get together with our extended families to drink eggnog, decorate trees, exchange gifts, and engage in various other annual family traditions. Well, the IRS appears to have a tradition of its own, although far less jolly than ours. Each January the IRS gets together with the Department of Justice and the US Attorney to sweep the nation for tax cheats — not exactly the kind of party you want to be invited to.

Here are the results of this years’ festivities:

  • the “sweep” involved 32 states and 215 cities
  • 734 enforcement actions (2,400 total in fiscal year 2012)
  •  109 arrests
  • 189 indictments
  • 47 search warrants
  • visits to 197 money service businesses (i.e., check cashing joints)

Read about specific cases here.

There is no doubt the IRS is strengthening its identity theft prevention and prosecution efforts.  Last year there were only 69 indictments and 58 arrests.  Sentencings are also on the rise, and jail times are getting longer.

The IRS is spending an unprecedented amount of resources on identity theft.  Perhaps the best evidence is the dramatic increase in criminal identity theft investigations:

  • 276 criminal identity theft investigations started in 2011
  • 898 criminal identity theft investigations started in 2012
  • 560 criminal identity theft investigations started so far in 2013

I’m not sure how they would do it, but the IRS could probably do a better job publishing this information and these stats.  It’s great that they’re stepping up efforts to punish identity theives, and the timing is perfect (right as people begin getting their taxes done), but if it’s only the tax attorneys and other tax professionals who are in the know, I would consider it a big opportunity lost.

Truncated Tax ID Numbers

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Many people wait with some anxiety for their income tax refund check around this time of year.  If you get a big refund then you, in essence, have given the government an interest free loan all year.  Still, many taxpayers overpay throughout the year because they have grown accustomed to receiving a refund check, which they see as a form of tax relief.

So what if that check never came?  It happens sometimes, and all too often it is the result of identity theft.  The IRS has taken numerous steps to prevent identity theft, but it still pays out billions of dollars in erroneous refunds.  One of the newest proposals in the fight against identity theft is the Truncated Taxpayer Identification Number, or TTIN.

The TTIN is basically the last four digits of a Social Security Number (SSN) and looks something like this: xxx-xx-4777 or this ***-**-4777.  The IRS has issued proposed regulations that would allow certain information return filers to use a TTIN instead of a SSN on their tax documents.  The IRS has run a successful TTIN pilot program in the past and it is believed that this will help curb identity theft.  Even if the regulations are approved, a full 9-digit SSN will still be required for 1040 income tax returns.  The proposed regulation has to do with information returns such as forms 1099, 1098, and 5498.

IRS Phishing Hits New Low

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By now we are used to reports of phony IRS emails spamming computers around the nation. We know that identify theft scams can result in loss of privacy, loss of property, tax problems, and countless hours of work trying to straighten things out with the IRS and other government agencies. The IRS has made it abundantly clear that they do not communicate to taxpayers via email, and if ever we were to receive an email that purported to be from the IRS, we can rest assured that it is a phony. We know to leave suspicious-looking emails alone (not open them) and immediately report them to

But now there are reports of phony IRS websites too (See IRS Special Edition Tax Tip 2012-13).  The phony IRS websites look much like the IRS e-services website, but don’t have the all-important .gov designation. There’s a fool-proof way of steering clear of phony IRS websites. If you find yourself on a website that begins with then you know you are on the official IRS website. If it begins with anything else, it shouldn’t take a tax attorney to tell you that it’s not the IRS!

Procedure for Reporting Tax Law Violations Needs Work

Maybe it’s because of the recent unprecedented IRS whistleblower payout, but people seem to be eager to turn others in for tax law violations these days.  Nevermind their own tax problems.  Of course most of the inquiries I see come from the estranged spouse or the “friend” seeking revenge.

The best way to report IRS problems involving fraud and other tax law violations is by completing and filing IRS Whistleblower Form 3949-A.  But according to TIGTA, Form 3949-A is too complicated for most taxpayers to be able to complete thoroughly and accurately.  And many are also using the form for something other than its intended purpose.

TIGTA studied a sampling of 530 whistleblower forms 3949-A and identified some serious problems:

  • 27 percent could not be processed because they didn’t provide sufficient details (not surprising since the form asks for things like the social security number and birth date of the person you are reporting)
  • 21 percent were incorrectly used to report identity theft (some IRS service centers were actually instructing taxpayers to use this form for ID theft when, in fact, they should be filing Form14039, the ID Theft Affidavit)
  • Forms that reported “other issues” not covered by F3949-A were often shredded by IRS personnel instead of being forwarded to the appropriate IRS function


The Victims of Identity Theft and Refund Fraud

Tampa, Florida criminals are still fixated on tax return fraud, a local trend that has held the attention of the IRS and law enforcement for the past several months.  I have blogged before about the criminals, but what about the victims of these schemes?  The victims are those whose social security numbers have been used to obtain false refunds and are who are blindsided by major tax problems.  When these innocent folks file their own legitimate returns and seek refunds, the IRS often denies them what is rightfully theirs.

It is reasonable for the IRS to carefully investigate these cases; they don’t want to give multiple refunds to the same taxpayer.  But the whole process for rectifying identity theft situations is flawed.

It is clear that the first step for the victim is to prepare and file a Form 14039 “Identity Theft Affidavit,” but what happens next is a mixed bag.  Most of the complaints about the process have to do with the fact that there is no process, no consistency.  This has led one Tampa-area attorney to use a rather unconventional tactict for providing tax help to victims of identity theft.  Attorney Jim Staack has been filing class action lawsuits against the IRS on behalf of aggrieved identity theft victims.  Coincidentally (or not), the class members have received their refunds, without fail, just days after being added in the case.

The Latest Phishing Expedition

Phishing: “a scam typically carried out by unsolicited email and/or websites that pose as legitimate sites and lure unsuspecting victims to provide personal and financial information.” A phishing victim often finds himself burdened with tax problems that are not his own. See IRS website for full detailed information about phishing and everything you need to know about identity theft.

Be on the lookout for the following email subject lines in your inbox:

“Urgent update of tax information is requested”


“Tax information required within 30 days.”

It is recommended that you delete these emails immediately because it’s a scam. If you do decide to risk opening the email, the text will look something like this:

Dear Account Holder,

In our continuing effort to guarantee that exact data is being sustained on our systems, as well as to provide you better quality of service; INTUIT INC. has participated in the Internal Revenue Service [IRS] Name and TIN Matching Program.

We have discovered, that your name and/or Taxpayer Identification Number, that is stated on your account does not correspond to the data on file with the Social Security Administration.

In order to check the data on your account, please click here.


Corporate Headquarters
2632 Marine Way
Mountain View, CA 94043

Thanks to Kelly Philips Erb for pointing out these scam emails from time to time. If bloggers will repost these scams all over the internet, maybe we can minimize the damage to innocent taxpayers.

Free Tax Prep: You Get What You Pay For

A total of 3.1 million individual income tax returns were prepared for elderly, disabled, and low-income taxpayers at Volunteer Program sites in FY 2010. IRS Volunteer Programs include  the Volunteer Income Tax Assistance and Tax Counseling for the Elderly Programs. These programs scored extremely low marks from TIGTA (Treasury Inspector General for Tax Administration)  in arecent audit.

The findings of this review are very troubling. ~ J. Russell George, TIGTA

TIGTA found that volunteers are not following guidelines, using intake forms incorrectly, and even knowingly falsifying the facts. This resulted in a sharp increase in inaccuracies during the 2010 filing season. An abysmal 39 percent of the returns picked up by TIGTA auditors were prepared correctly. However, the sample size of the audit was very small: 14 out of 36 returns were error-free.

TIGTA is also concerned that the volunteers are not being properly screened. This is especially troubling given the amount of sensitive personal information that is entrusted to the volunteers by taxpayers who are perhaps more vulnerable to identity theft and fraud than the average citizen.

So, what does TIGTA recommend the IRS do to turn things around? There were many recommendations, and the IRS agreed to implement all of them. Here are just a few:

  • Evaluate the quality review process
  • Include “secret shopper” component in audit process
  • Improve volunteer standards of conduct
  • Develop a process for keeping a closer eye on volunteers
  • Revise intake procedures

These recommendations obviously lack the specifics needed to immediately put them into practice. It will be up to the IRS to fill in the blanks and decide how it will implement these changes. It really is unfortunate that the government cannot provide competent tax prep services to those who are willing to participate in the tax system, but do not have the resources or ability to file on their own. I wonder how many of these people realize that when they sign their name on the return, the error made by the preparer becomes their own error. I also wonder how many of the mistakes made by volunteers have resulted in a tax debt when a refund was expected.

Beware of Bogus IRS Emails

I have said this before, but it bears repeating. Any emails you might receive purporting to be from the IRS are more than likely spam. The IRS does not communicate with individual taxpayers in this manner. You should forward any such email to and then delete the emails without opening them.

Apparently there is another batch of bad emails being dispersed this week. Thanks tKelly Phillips Erb at Forbes for the heads up. One is from “” and the other is from “support” Hopefully you’re not so curious that you would risk infecting your computer, or worse, giving up personal information to identity thefts. But, if you can’t stand not knowing what the emails say, this is the gist of it:

“Important information about your tax return. We are unable to process your tax return. We recived your tax return. However, we are unable to process the return as field. Our records indicate that the person identified as the primary taxpayer or spouse on the tax return did not provided all the required documents shown on the tax form. Our records are based on information received from the Social Security Administration. Based on this information, the tax account for the individual has been locked.” The message is full of typos, which could make you wonder if it really isn’t from the government. But it goes on to request personal financial information. Its definitely a scam.