Return preparers and financial institutions should be on alert!

How to Detect and Prevent Fraud
Fraud Detection Center Contacts
 

The Internal Revenue Service (IRS) wants cautions return preparers and financial institutions offering refund anticipation loans (RALs) about a growing fraud area. There has been a significant increase in the number of fraudsters filing completely false returns based on bogus documents. This is being done for the sole purpose of obtaining illegal refunds, mainly in the form of refund anticipation loans so they can get the money as fast as possible.

In these schemes, the fraudulent tax returns are being used as the vehicle for obtaining the refund anticipation loans. When the RAL is paid by the financial institution, the fraudsters disappear, leaving the return preparer and the financial institution incurring a loan loss if the refund is not issued. The IRS reports a majority of these fraudulent refunds are stopped by the IRS, so the loans are never paid.

This crime is increasing at a disturbing rate. Last year, one in every 966 e-filed returns was fraudulent. While just three years ago, that number was one in 4,789.

During the 2003 filing season, a total of 55,904 fraudulent returns were e-filed. Of those, 78 percent came through practitioners. In addition, there were 212 unique Electronic Filing Identification Numbers (EFIN) that transmitted more than 50 fraudulent returns.

Tax practitioners offering e-file and RALs are strongly encouraged to practice due diligence and be on guard to stop fraudulent returns from being filed through your EFIN.

How to Detect and Prevent Fraud

Look closely at all documents, particularly those authenticating the identity of the taxpayer, and question suspicious activity. The following may be indications of fraudulent activity:

• W-2s that are typed, handwritten, duplicated or have noticeable corrections.
• W-2s for a firm in the area that differ from other W-2s from the same firm.
• Suspicious people accompanying the filer and observed on prior occasions.
• Multiple refunds directed to the same address or P.O. Box.
• Employment or earnings that are a basis for refundable credits but are not well documented.
• Similar returns (e.g. same amount of income, deductions or refund).

Report potentially fraudulent documents to the IRS for evaluation. Documents may be faxed directly to the IRS Criminal Investigation Fraud Detection Center for your state.

Fraud Detection Contact Centers

Visit www.irs.gov regularly for information updates and Tax Fraud Alerts; these can be quickly accessed by using IRS keyword: Fraud.

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