WANTED: Identity Thieves and Tax Returns

There is a big problem brewing with tax returns, and it’s not fear of the Internal Revenue Service! Thieves have now resorted to filing fraudulent tax returns on behalf of innocent victims, stealing huge refunds. In a nutshell, the “tip-off” seems to be when the innocent victim files their actual return, they receive a letter from the Internal Revenue Service which basically states “duplicate return filed.” That is the first significant clue, since the IRS has a return in the system, and the innocent taxpayer hasn’t yet filed. So when the IRS states that a return for that year is already in the system, the smell test just failed…utterly.

That’s at the federal level. A case just emerged in eastern Massachusetts involving state income tax. So now thieves are stealing Massachusetts refunds too!

What is going on?

The three known federal cases (involving duplicate returns) coming out of eastern Massachusetts all involved significant estimated tax payments and wealthy individuals.

Identity Theft and 201 CMR 17.

In a nutshell, Massachusetts implemented a regulation (known as CMR 17), to establish standards to be met in connection with safeguarding personal information contained in both paper and electronic records.

I bring up CMR 17 because personal information from wealthy people has been stolen, and further, the thieves knew estimated tax payments were made. That is pretty deep private information being gathered. Frankly, that’s not passing my smell test either.

For Massachusetts Residents, I would advise people to ask their CPA how they are compliant with CMR 17. At our office, in addition to the computer safeguards, the dead-bolted doors and the agreements everyone must sign, we’ve gone even further. Our new location is on the top floor (11th), and the elevators will not go beyond the 10th floor after five and on weekends without a special key. Further, one can’t come up the staircase to arrive at the 11th Floor, ever. You can only leave via the staircase, for it locks behind you (for those “Eagles” fans, think of a reverse “Hotel California”, if you will!).

Cheap Labor and India?

Yes, India. There are estimates that place the number of U.S. tax returns prepared in India at well over 1.5 million returns for 2011. Larger firms are typically the firms that outsource tax return (i.e., Form 1040) preparation to countries (like India) simply to stay competitive. But how many people have actually seen an offshore tax preparation workshop? What are the security measures? What is a preparer’s pay scale in a country like India? Can a thief hang around the back door and offer, say, $500 per taxpayer identity (including estimates, of course), to someone earning far less per week? I’m simply asking the question.

A very large tax fraud case just concluded in New York, involving fraudulent returns being prepared out of the Domenican Republic. Those culprits used stolen identities from residents of Puerto Rico, for criminal intentions I don’t dare state publicly. Suffice it to say it’s disturbingly impressive. But I find it interesting that significant fraud is happening from offshore. Further, since large firms tend to be the firms outsourcing tax return preparation services offshore, and large firms seem to have larger, wealthier clients….hmmmm.

Ask your CPA how they handle privacy matters. Are they aware of CMR 17? Even those preparers outside of Massachusetts should know about CMR 17. And FIND OUT if they outsource tax preparation services offshore. Oh, and as a true attorney and U.S. Citizen, let me add… GET IT IN WRITING!, and “BUY AMERICAN PROFESSIONAL SERVICES!!”

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