Due to concerns about tax return fraud, more taxpayers than usual are receiving their tax refunds in the mail instead of via direct deposit to a bank account. With identity theft on the rise and scammers out to snatch tax refunds before taxpayers can file their returns, receiving a refund by mail offers some benefits. However, there are also some disadvantages you need to explain to your clients.
Tax return fraud related to identity theft is a big problem this year. In 2013, this type of fraud cost the Internal Revenue Service nearly $6 billion and prevented some taxpayers from receiving their tax refunds in a timely manner. Identity thieves use stolen Social Security numbers to file electronic tax returns, robbing taxpayers of their expected refunds. For people who count on using their refunds to pay off debt or purchase big-ticket items, this type of theft is a real problem. It can take the IRS up to a year to resolve, keeping innocent taxpayers from accessing their money.
A common tactic of scammers is using stolen Social Security numbers to file joint returns with other people. Though the IRS has some safeguards in place to verify the identify of people filing tax returns, some tax professionals argue the safeguards aren't strong enough. The IRS often uses information from credit-reporting companies to verify taxpayers' identities. Unfortunately, fraudsters are very good at making it look like they are the true owners of Social Security numbers.
The problem of fraud has gotten so bad that some states are issuing paper checks, even if taxpayers requested their tax refunds via direct deposit. South Carolina officials say the number of fraudulent returns for 2015 is already double the number received by the same time in 2014. The South Carolina Department of Revenue has a procedure in place for expediting these refunds, but there might be a delay for some taxpayers. If taxpayers receive a check in the mail but have yet to file a return, they should call the SCDOR office to report suspected fraud.
Your clients can proactively request to have their tax refunds mailed to them, but receiving a paper refund has its own set of problems. Some taxpayers may have difficulty finding transportation to a bank or check-cashing agency to cash the refund check. Taxpayers without valid identification cards also have difficulty cashing their tax refunds.
For many citizens, tax season is already a frustrating time of the year. Identity thieves are making it worse by stealing the tax refunds owed to thousands of taxpayers. If any of your clients are worried about fraud, it might be best to advise them to request their tax refunds by mail. Unfortunately, mailed refunds also have problems, making it difficult to determine if a paper or electronic refund is best.
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