Ever wonder how tax return identity theft got to be such a big problem? Here’s the background.
Employers are required to distribute annual W-2 Wage and Income Statements to all employees by January 31st of each year, for the previous year. This gives the taxpayers enough time to put together their financial information to self-prepare their tax returns or to get them done by their licensed tax preparer. Most returns are filed in February and March with the refunds depositing, usually within 10 business days, to a bank account. Checks are delivered a couple of weeks later.
Congress has mandated that the IRS send out refund checks immediately in the belief (mistaken premise based on faulty economic theory) that taxpayers will spend this money and boost the economic activity for the nation.
Identity thieves use your personal information to file before you do. The IRS never checks to ensure that the information is consistent from year-to-year. As long as the Social Security Numbers match, the return gets processed. The IRS then sends the bogus refunds to the thieves’ bank accounts of choice, as requested on the tax return, or mail checks to post office boxes.
When you file your return, it gets rejected since the IRS has already processed a return with your Social Security Number. Voila!! You are now a victim of identity theft and you must go through a tortuous, lengthy procedure to receive your correct refund. What is worse, you also must contact all personal and business financial organizations you do business with to let them know that your ID has been stolen. This mess can take anywhere from 6 months to 2 years to resolve.
And Congress still does nothing about this. As the late Paul Harvey used to say, “And now you know the rest of the story.”
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