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The Resource Center Identity Theft & Protection | post

The IRS Can Collaborate With Local Law Enforcement; NJ Sets Aside Anti-Fraud Program on Suspicious Returns

by Steve Schwartz on

As the tax season is drawing to a close, and a couple of tax items have crossed my desk that I thought I would share for you.

A major problem has existed for state, local and even federal law enforcement trying to investigate identity theft cases involving tax returns. Under IRS Sec. 6103 the agency is prohibited from discussing tax return information even with law enforcement. But new regulations are being rolled out that will change this.

Beginning last April in Florida, the epicenter of the phony tax return epidemic, and then expanded in October to include eight more states (Alabama, California, Georgia, New Jersey, New York, Oklahoma, Pennsylvania, and Texas) new regulations allow police — with permission from the identity theft victim — to view potentially fraudulent tax returns.

"This program is an effective way for law enforcement to work with the IRS to pursue identity thieves and protect taxpayers," acting IRS commissioner Steven T. Miller said in a statement. "The pilot expansion will help these efforts."

So far this year, the IRS has resolved more than 200,000 identity theft cases since the beginning of 2013, and it has issued 770,000 identity protection personal identification numbers (IP PINs), a security number it issues to help protect taxpayers who have had their identities stolen.

Now police in all 50 states and the District of Columbia can view tax documents when investigating identity theft cases. Under the program, state and local law enforcement officials with evidence of identity theft involving fraudulently filed tax returns obtain permission from the victims to disclose their tax return information. The IRS also will assist law enforcement in locating identity theft victims and obtaining their consent.

Nina Olsen, the national taxpayer advocate, expressed concern that tax-sensitive information could be made public after it was shared with law enforcement officials. But the IRS says police will only access the information with permission from taxpayers, and that documents will be sent directly to police for the sole purpose of investigating and prosecuting identity theft crime.

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I guess this should be put into the no good deed goes unpunished file.

States are also major victims of fraudulent tax returns filed to garner phony refunds. So this year New Jersey introduced what it called a tax-refund identity theft compliance program that required taxpayers who filed questionable electronic returns to furnish additional information — such as copies of W-2 forms or pay stubs— before their refunds would be released.

Initially, a computer software program flagged some 22,000 tax returns seeking refunds for additional scrutiny. Now the state has learned the software was incorrectly calibrated and that 9,000 of the filers whose refunds were held up shouldn't have been singled out.

Now facing an avalanche of complaints from others who refunds have been held up the state has announced it is lifting the requirement that the other 13,000 filers prove their identity and wait around three months to receive their refund. Their refunds will be paid starting next week, the state said.

In a statement the state taxing agency said:

"Beginning next week, the vast majority of the 13,000 taxpayers who still had open requests from the Division of Taxation to supply additional documentation in support of their refund requests for tax year 2012 will receive their refunds either through checks that will be mailed to them or electronic credits to their bank accounts.

"Tax refund fraud, and the identity theft that often accompanies it, are serious and growing problems in tax administration. The Division introduced an enhanced compliance program for tax year 2012 that was intended to reduce the risk of tax refunds being paid improperly. However, the Division determined that the current version of the program requires further modification to better balance its fraud prevention benefits with the burdens it imposes on taxpayers."

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