If you’ve been wrongly accused of tax fraud or tax identity theft, you’re not alone. The IRS has been cracking down on tax scams, and while their efforts have drastically decreased instances of legitimate fraud, they’ve also managed to accidentally catch innocent taxpayers in their web.
Keep reading to learn more about IRS efforts to decrease tax fraud, how to help legitimize your tax actions, and what to do if you’ve been wrongly accused.
The IRS Crackdown on Tax Fraud
Since tax fraud spiked in 2015, the IRS has upped their game to cut back on fraudulent filing. In the first year of their crackdown, they caught over a million cases of identity theft returns and saved billions by stopping other types of return fraud.
Their success is due to two main improvements.
1. The Security Summit Initiative
The security summit partnership was established in 2015 to develop more ways to safeguard taxpayer information. The summit was and still is a collaborative initiative by the IRS, various financial institutions, the tax community, and numerous state departments to share information and coordinate efforts to catch and stop fraudulent behavior.
Throughout the year, the IRS publishes “Taxes. Security. Together.” notices to help raise awareness of recent scams and provide information to help protect taxpayer information. The other organizations involved in the summit also keep each other informed of recent scams they have discovered and how to catch the scammers.
2. Improved Tax Identity Verification
Tax identity theft is one of the most common types of tax fraud and involves stealing a taxpayer’s information and filing a fake return in their name. To counter identity theft, the IRS has improved its methods of verifying taxpayer identity through stronger password requirements, additional security questions, lock-out features, and innovative email verification techniques.
There is no denying that their efforts are working, but the crackdown has an unexpectedly high false-positive rate. Research suggests that 60-80% of returns flagged as fraudulent are legitimate taxpayers who are just trying to collect their well-deserved refunds.
How is this happening?
What’s Causing Taxpayers to Be Wrongly Accused?
The IRS doesn’t have time to verify every tax return filed, so how do they decide which returns require a closer look? One of the most telling signs is if they receive two separate tax returns with the same social security number. They know one of them is fraudulent and will contact the filers to determine which. Here’s where the improvements in identity verification can trip up honest taxpayers.
Answer one single question incorrectly, and the IRS may hold up your refund until you visit an IRS office in person to clear up the issue. The improved verification processes include harder security questions and information about past filing years, car loans, previous addresses, current credit cards, or even the name of an IRS or tax professional who contacted you in the past.
While taxpayers who are the victim of identity theft may appreciate these extra measures, those whose returns were flagged for other reasons likely do not. Other return actions that may trigger erroneous flagging might include:
- Larger than average charitable donations
- Claiming earned income credits
- Including numbers on your return that don’t match IRS data
- Withdrawing from a retirement account early
All these reasons can be honest mistakes or legitimate figures — but if the IRS decides something on your return seems suspicious, you could be in for a world of inconvenience and even fines and penalties.
RELATED ARTICLE: The 2019 Audit Survival Guide: 6 Tips for Surviving a Tax Audit
Fraud Vs. Negligence: What Happens When You’re Accused?
Whether the IRS flagged your return due to suspected tax fraud or negligent misfiling, you need expert help to handle the corrective action they’re going to bring against you. The only difference between fraud and negligence is the intent.
Individuals convicted of tax fraud can face up to five years in prison, $250,000 in fines (plus the cost of prosecution), or both. Tax negligence has fewer extreme consequences — with a penalty of an additional 20% of the amount you underpaid.
Proving that you were negligent and not fraudulent, or that you’ve been the victim of identity theft, can be a complicated process. And many taxpayers in these situations require the help of a tax expert.
Contact S.H. Block Tax Services for Help Clearing the Air With the IRS
Working with an experienced tax attorney is the best way to clear up misunderstandings with the IRS and bring your $250,000 fine down to just a few hundred dollars. If the IRS is having difficulty verifying your identity, a tax attorney can also help you gather the necessary documents to ensure that you get your return.
If you need help clearing the air with the IRS, please contact the tax experts at S.H. Block Tax Services by calling 410-793-1231 or completing the brief form to the right.
IRS, States, and Tax Industry Combat Identity Theft and Refund Fraud on Many Fronts. (2016, January). Internal Revenue Service. Retrieved from https://www.irs.gov/newsroom/irs-states-and-tax-industry-combat-identity-theft-and-refund-fraud-on-many-fronts
Herron, J. (2019, March 16) Tax refund fraud: IRS crackdown ensnares legitimate taxpayers. USA Today. Retrieved from https://www.usatoday.com/story/money/2019/03/16/tax-refund-fraud-irs-crackdown-may-ensnare-legit-taxpayers/3166441002/
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.