Scammers Using Changes in Tax Rules to Conduct Tax Refund Fraud

Last updated on July 21, 2023

Tax scammers keep looking for new ways to dupe taxpayers. When the Supreme Court struck down the Defense of Marriage Act, followed by the IRS’ announcement that same-sex couples that are legally married can now file their federal income tax returns jointly as a married couple, it gave rise to a new form of tax refund scam targeting same-sex couples. The Modesto Bee shares the story of a couple that faced identity theft:

“Something was odd when the IRS letter arrived in the mail.

“Addressed to Sherril and Jessica, it asked about the couple’s 2013 joint tax return. Only problem: Sherril Cortez had already filed her 2013 income tax return – with her husband of 25 years, Manuel.

“In the letter, Cortez, a graphic designer and mother of two, was asked to contact the IRS to verify her identity. When Cortez showed up at the local IRS office in Sacramento – with her tax records and two requested forms of ID – she was startled to discover that someone had filed a second, but bogus, 2013 tax return using her name, address and Social Security number.

“‘It was a little alarming to get a letter like that,’ said Cortez, an Antelope resident. She didn’t know ‘Jessica’, the other woman whose name was linked to hers, and has no idea’ how they wound up together on a same-sex tax return.

“According to what Cortez was told at the IRS office, she and ‘Jessica’ reported an almost-identical income to that of Cortez and her husband. But, because the phony tax return claimed much higher deductions, it was entitled to a much bigger tax refund.

“‘It sounds like another example of a tax refund scam,’ said Arlette Lee, special agent with the IRS criminal investigation division office in Oakland. ‘We do see scams emerging from changes in federal law,’ said Lee. ‘Somebody will figure out a way to take advantage and try to get money from the federal government.’

Identify theft continues to top the IRS’ Dirty Dozen Tax Scams list in spite of significant efforts in fighting it. The remoteness of the tax crime, the difficulty in tracking offenders, and new methods of scamming have made it tough for the IRS to curb this kind of activity. The Modesto Bee offers details about the IRS corrective actions against identity theft:

“To combat ID theft, the IRS launched a massive nationwide investigative effort in 2012, assigning 3,000 tax agents to investigative units. That year, the IRS said it thwarted $20 billion in fraudulent tax returns, compared with $14 billion in 2011. In January 2013, the IRS conducted a coast-to-coast sweep of identity theft suspects that led to more than 700 enforcement actions, including 298 indictments, complaints and arrests.

“Attempts at tax return fraud are relentless and often require time-consuming, complex investigations that can hold up legitimate tax refunds going to honest taxpayers. ‘Cases of resolving identity can be complicated by the thieves themselves contacting the IRS,’ said the IRS on its website. ‘Due to the complexity of the situation, this is a time-consuming process,’ with the average case taking 180 days to resolve, it said.”