The Practical Reality of ID Theft
Here’s why the IRS is delaying refunds
Yesterday I sent out an e-news piece about when tax filing would begin for 2016 returns. It included a warning about the IRS delaying refunds for certain taxpayers. I got feedback that let me know that the delay was even worse than I originally thought. Here’s the text of that correction:
Those returns with Earned Income Tax Credit and Additional Child Tax Credit and education credits will likely have their refunds delayed until February 15th.
And that delay will continue to roll throughout the tax season.
If your return is one of these, expect a two or three-week additional delay in receiving your refund.
Earlier I said February 1 was the delay date, and that was incorrect.
Almost immediately I got a reply pointing out that the writer had had to wait for their refund for the last two years. She added , “If I delay in payment we get big fines! Good ol’ IRS!”
That comment is factual, and the opinion is widely shared. But in this case, it is Congress, not the IRS, that ordered this delay. Why?
As the IRS Director pointed out, tax fraud is becoming a serious problem, costing the nation $14.5 billion in fraudulent earned income tax credits, and another $7 billion in Additional Child Tax credit payments.
As the late Illinois Senator Everett Dirkson famously quipped, “A billion here, a billion there and pretty soon it adds up to real money!”
How does this fraud occur? Two very easy ones are:
* Simply lying on a tax return
* Filing a tax return using someone else’s identity and lying on that
In both of these cases, the IRS now needs more time to verify that what is reported is correct. They need to verify tax ID’s, ages of dependents, reported income (both wages and self employment). In order to help with this, they have made some changes in reporting.
In the past you were always supposed to get your W2 by February 1. But your employer had until the end of February (or even the end of March in some circumstances) to actually file the report with the appropriate agency–the Social Security Administration in the case of W2s.
Not so in 2017. All income reports must be filed by the end of January. This two or three month earlier filing will provide the IRS a better chance to check the correctness of the returns being filed.
But the underlying issue is identity theft. People who get access to your family’s social security numbers and birth-dates. Those thieves can file a return in the name of your 6 month old, get a large refund from a fraudulent W2. When you file your return, the child’s social security number has already been used on a return, and you have to prove you are right, not the first filer. Even if it is your own identity, you have to prove that you are the correct filer.
This is the practical reality of the identity thefts you see publicized almost weekly. The IRS has to punish all Americans to try to ferret out the phony filers. It’s like when the teacher makes the whole class stay in from recess because no one would confess to shooting the spit ball.
It is often years before the problem surfaces, however. That 6 month old I mentioned before may already have a credit card or a mortgage in his or her name. If problems arise, the credit report goes to your child. Then, seventeen and half years later the child cannot get a job or get accepted to college because they have bad credit already.
And it’s not just financial issues. Medical records, criminal records and even education records are often keyed to social security numbers. So your minor child may already have a criminal record, or may have a history of expulsion from high school or college. Delayed refunds are only a minor problem compared to these.
What can you do? Well, not much, frankly. I have heard it said, and I think it may be true, that you have probably had your identity stolen already, you just don’t know it yet.
For the IRS issue, just like the IRS, you should file your tax return as early as you can. Remember, it is the second filer using the same number that has to prove their identity. So make sure you are not that second filer.
How about using an identity theft protection service? Well that’s a good idea, but you want to make sure you pick the right service.
I recommend IDShield from LegalShield. A family program costs about $20 a month, and protects the parents and up to 8 children under age 18. So this program would provide coverage for that six month old’s felony conviction report.
But here’s the real beauty of the IDShield program. You don’t have to do anything once the problem arises. You grant a limited power of attorney to an agent of Kroll to actually restore your identity, not just protect it. Kroll is the largest security company in the world, serving corporations, individuals and even governments with security issues. You don’t have to make the phone calls or write the letters. The agent will do it for you.
All of the usual features are there as well–credit monitoring, warnings about unusual activity, and the like.
I recommend you do some research and see what steps you can take so you are not caught unaware. Check out IDShield to see if it makes sense for you. If you like the other work I do for you, I ask you to go to www.mikewright.net to do that checking. I am a LegalShield representative, and I can set you up with IDShield alone, or a comprehensive programs that include LegalShield as well. I just ask you to check it out.