Tuesday, May 15, 2007

Online Criminals Targeting Tax Refund Checks

This year, the IRS took the somewhat unusual step of issuing a pre-tax filing deadline warning - about the growing number of fake tax filing sites online.

According to the IRS, these phishing sites look very similar to many of the 19 sites officially sanctioned by the IRS. They have form fields designed to accurately and efficiently capture your first name, last name, social security number, home address and date of birth.

Nothing better suits an identity thief than a form full of taxpayer information. Especially when that form includes bank account information for the refund check.

When that information is included, criminals don't even need to steal your identity - they just do a "pass through": change the banking and refund information, submit the form on your behalf, and wait.

Before you've made the call asking where your check is, it's already been deposited, and withdrawn - half a world away.

In an interview with MSNBC's Brian Braiker, Terry Lemons, spokesperson for the Internal Revenue Service, acknowledged the existence of the above scams, noting that they had uncovered such a scam just a few days before filing day:

"What we discovered late Friday is that there was a site pretending to be one of the affiliates to get these people’s tax information, with official looking logos. If you stumbled onto this site you might think it’s legitimate."

"People were entering info, and the [people behind the scam site] were taking the bank account number, changing it to their own, and having the refund routed to their bank account."

He suggested taxpayers should only go to the 19 officially-sanctioned sites "directly from the IRS web site". The only problem with this is the number of ways criminals can divert traffic away from these legitimate sites to equally official-looking sites.

If you did visit a tax filing site that promised lower filing fees or some other benefit - and you're not sure it was on the list - you could go back through your browser history and take another look at it... maybe check the URL listed in the form field and see if it makes sense to you...

But the reality is, if you were scammed, the only thing you can do is wait for your check to come - and watch carefully for activity in the area of your bank account. The following comment from a Newsweek reader, Ms. Teresa Fleming, dated April 17, shows this kind of diligence can pay dividends:

"I recently filed my taxes electronically. Within days someone illegally accessed my bank account, set themselves up as a payee and scheduled themselves a large payment from our account on the same day we were scheduled to receive our tax refund."

"Although we can not be absolutely sure that it was because we filed our taxes electronically, it certainly seems the most likely scenario since they were attempting to withdraw the money on the exact day that we were scheduled to receive our refund. In addition, they managed to access our account within days of our filing our tax return electronically."

"Fortunately for our family, our bank sends out an alert anytime there is a change made to our account and we were able to prevent the theft. However, we had to close our checking account; order credit reports and are still in the process of working with the bank and notifying the IRS."

"We have already notified the tax filing software program company. Although we have filed electronically in the past, we will not do so in the future. The risk is simply too great."

In this instance, Ms. Fleming got lucky - in the "diversion" scam mentioned by the IRS, it is unlikely any error would ever be noticed, because the action taken by the criminal - changing the refund remittance information - is only known to them.

The fact the form was submitted for processing rather than discarded by the criminal makes this a much more elegant scam than simple theft, and much harder to wipe out.

Hopefully, by next year, there will be a better system in place - one that will enable consumers to stop worrying about whether or not their tax refund checks will turn up. Authentium makes a solution that I believe has the ability to prevent this kind of scam in the future - hopefully this will alleviate some of the uncertainty about filing online.

We're currently showing it to several of the folks on the list, along with some of the relevant tax filing software companies. With a bit of luck, it will be in place prior to next year's filing date.

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