Sunday, January 29, 2006

Tax Time Spawns Scams: The Morning News

Tax Time Spawns Scams
By Lana F. Flowers
The Morning News

Add identity theft, stolen refund checks and withheld refunds to the numerous frustrations of tax time.

The Internal Revenue Service is not the only entity interested in your mothers' maiden name, credit card and Social Security numbers and other personal information. Scam artists perpetuate e-mail scams, known as "phishing," trying to get people to give personal and financial information, so scammers can commit identity theft. Thieves may watch mailboxes to steal refund or Social Security checks.

And if you don't receive the expected refund, don't always blame a miscreant.

The IRS, possibly suspicious of your filing, might be holding your refund.

Tax refunds may be fertile ground for fraud because there are so many returns filed. The IRS reports 133.93 million individual tax returns were filed in 2005, a 1.3 percent increase from the 132.2 million refunds filed in 2004, the IRS reported.

The average tax refund was $2,171 in 2005, a 2.1 percent increase from the 2004 average tax refund of $2,126, according to the IRS.

Consumers can protect themselves from tax schemes by not taking phishing bait or by calling the IRS to check the status of refunds.

Tax Phishing
The tax refund phishing scam starts with an e-mail, which appears to originate from taxrefunds@irs.gov. The e-mail tells recipients they may be owed a federal tax refund.

Mike Beebe, Arkansas attorney general, recently warned Arkansans about a specific e-mail scam that uses official sounding language about tax laws. A link in the e-mail purports to take consumers to a secure Web site, where they can enter financial information and account numbers.

Beebe said it's a trick to steal consumers' money.

"Like other government agencies, the IRS does not send you an e-mail out of the blue asking for your personal information," Beebe said in a statement.

Information on a filed a tax return, a W-2 withholding form and other filing documents is all that is required to respond to taxpayers. People who want to know if they are due any federal tax refunds can contact the IRS at 1-800-829-1040.

"The representative who takes your call may ask for personal information, but when you initiate contact and are confident in the identity of the individual with whom you are speaking, it is safer to then share your information to obtain services," Beebe said in the news release.

Matt DeCample, attorney general's office spokesman, said he does not know of any complaints from Arkansans about the tax scam.

However, DeCample said it may take some time for consumers to notice there is money missing from an account or an unusual charge on a credit card statement.

In addition, DeCample said some consumers might complain to the IRS, FBI or another national agency.

"There is more and more national attention on scams and less localized attention," DeCample said. "These e-mails or phishing scams can be sent from anywhere in the world and people send them to everywhere in the world."

Quick Refunds
Some people may not wait to get tax refunds to spend the money. Some businesses offer refund anticipation loans, which consumers repay later when refund checks arrive.

Buy here, pay here used car lots often run pre-refund season promotions, in which car buyers can use their W-2 tax withholding and wage statement forms as down payments for vehicles.

DeCample said he has not heard any reports regarding anticipation loan scams, but a 2005 consumer alert tells people to read and understand anticipation loan terms.

People who got refund anticipation loans spent an average of $250 in fees, equal to annual percentage interest rates of 40 percent to 1,700 percent, the alert said.

Consumers must repay refund anticipation loans even if they ultimately don't receive tax refunds, according to the consumer alert.

Frozen Refunds
The IRS freezes questionable tax refunds without telling people they're suspected of fraud, according to Taxpayer Advocate Nina Olson.

The Questionable Refund Program, run by the IRS Criminal Investigation office, uses computer programs and other methods to screen tax returns. More than 28,000 taxpayers whose refunds were frozen sought assistance in 2004 from the Taxpayer Advocate Service, according to Olson's Jan. 9 report.

The IRS does not inform taxpayers that they're suspected of fraud and taxpayers aren't told anything until six months after trying to determine a refund's status, according to Olson.

The IRS tries to validate taxpayers' rights to the refunds and lifts the freeze if there's no fraud. If the refund cannot be validated, it is frozen permanently for further investigation. Refunds claimed on tax returns determined to be fraudulent remain frozen for an undisclosed number of years until the IRS sees the taxpayer file a number of legitimate returns.

Olson studied a representative sample of the cases the taxpayer advocate service handled throughout 18 months. That study showed no evidence of fraud in 66 percent of cases and taxpayers got full refunds. In 14 percent of cases, taxpayers got partial refunds.

IRS representatives said the questionable refund program temporarily delays a small number of refunds, but since 1999 has stopped more than $3.1 billion in fake refunds.

For more information about the taxpayer advocacy program, go to www.IRS.gov and click on the taxpayer advocate issues report link.

The Associated Press contributed to this report.









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Behavior Management Expert and Maximizing Your Potential Mentor™ Etienne A. Gibbs is a life-observing author, engaging talk show host, humorous speaker, and successful trainer who teaches small business owners, managers, and employees how to speak, think, and perform in ways that will help them shine. In the end, they maximize their critical thinking, speaking, and management skills.

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