News


Palo Alto residents find themselves victims of tax scam

Criminals use identity theft to file for refunds using others' Social Security numbers

When Ken and Michele Dauber tried to file their tax return in April, the Palo Alto couple learned that someone else had beaten them to the punch. An unknown person had used their identity to claim an $85,000 refund. The Internal Revenue Service was about to cut the scammer a check.

The Daubers were not alone. Palo Alto police have received 17 complaints of identity-theft income-tax fraud so far this year. That's up from 11 for all of 2014, police spokesman Lt. Zach Perron said. Menlo Park police have handled 15 cases so far this year; there were 11 in 2014, police spokeswoman Nicole Acker said.

The Internal Revenue Service (IRS) estimates that $5 billion is lost each year due to tax fraud and improper payments.

The Daubers said they tried to filed their return electronically on April 12, only to be told "they" had already filed.

"They clearly had last year's return to log in (for online filing)," Michele said of the scammers. "The IRS asks questions about your tax filing to log into your identity. You realize, 'Oh my God -- they have all of the info to get credit cards.'"

Someone also tried to get into their bank account about the same time the Daubers were learning of the bogus tax return. Ken had tried to log into their account and was denied access after the credit union detected three log-in attempts with the wrong information, Michele said. The Daubers went to their bank and created passwords with special codes. They prepared their tax return immediately in paper form before April 15 -- they owed money this year -- and mailed it in, she said.

The couple also filed a police report.

Ken said in the future he will file paper returns or use the IRS online filing system. The IRS will provide a PIN number associated with their return to identify the filer.

"We have this very leaky data system in this country. Everybody is vulnerable. Part of the problem is the big actors -- the credit-card companies -- are economically dependent on the free flow of your information. They don't have any incentive to make things more secure," he said.

One thing he learned through the experience: The later one files, the more vulnerable one becomes because the chances are the scammers will have filed before the taxpayer.

"If you're filing on Jan. 1, no one can file before you. That's definitely a lesson I'm going to take," he said. He also thinks everyone should have a security freeze on their credit reports, designed to prevent new credit or service accounts from being opened in their name, he said.

Diane Carlini, a spokesperson for Intuit, the makers of Turbo Tax software for tax preparation and filing, said that phishing is a major trend among scammers to get a victim's information.

Phishing emails, phone calls and letters often purport to need information from the victim and can be disguised as coming from a bank, social networking site or even the IRS. The scammer may add malicious programming to steal vital information off of computers, smart phones and laptops. Carlini said storing personal and financial documents on a laptop is not a good idea because the devices are not secure.

Microsoft offers a tutorial on how to recognize and avoid phishing (tinyurl.com/3c2axs8).

Intuit also has a webpage about what to do if one suspects one's IRS account has been compromised (tinyurl.com/lprqryt).

The company added multi-factor authentication to customers who used Turbo Tax. The customer must answer a series of security questions and take other steps to gain access to their information. Customer data is stored online and held in a safe and secure environment. The company's security team continuously evaluates threats, she said.

Warning signs of fraud include if a taxpayer receives an IRS letter or notice that states: more than one tax return was filed using a Social Security number; that one owes additional tax, refund offset or have had collection actions taken for a year the taxpayer did not file a tax return; IRS records indicate that the taxpayer received wages from an employer they do not know. The agency has an online tutorial for identity-theft victims who find that their tax returns were already filed: irs.gov/uac/.

Intuit notes on its webpage that the IRS might send a letter called Letter 5071C asking the taxpayer to verify his or her identity, but it will ask the taxpayer to confirm it through a phone number or the IRS Identity Verification Service.

"The online service will ask you multiple-choice questions to verify whether or not the tax-return flagged for further identity verification was filed by you or someone else. The IRS only sends such notices by mail. The IRS will not request that you verify your identity by contacting you by phone or through email. If you receive such calls, they are likely a scam," Intuit noted.

Taxpayers who find themselves victims of the tax-filing crime don't have to repay the stolen money, but they won't receive a tax refund until the IRS has wound up a lengthy investigation. The IRS claims it resolves most cases within 120 days, but a 2014 Taxpayer Advocate Service annual report to Congress found the average time for a case to resolve was 179 days, or six months.

"All that means is that it took 120 days for Accounts Management to resolve one module. It does not mean all of the victim's tax issues were resolved in 120 days," the report noted.

And 22 percent of the "closed" cases still required additional steps to resolve taxpayers' identity-theft issues.

As for the Daubers, they said their brush with the tax scammer has turned out OK: Despite the identity theft, they are squared away with the IRS for this year.

Comments

9 people like this
Posted by Skeptical
a resident of Duveneck/St. Francis
on May 15, 2015 at 9:09 am

The IRS is run by a bunch of idiots.

I found myself in a similar situation at almost the same time. In my case, I was able to log into the IRS website and discovered that the fraudulent refund was approved and would be paid in a few days. I called the IRS so they could not pay the refund and they told me they could not stop it.

The fraudulent return was missing a lot of information and had wrong SSNs for my kids. Despite all of that the IRS gladly paid the refund requested. And now *I* have to jump through hoops to prove who I am and wait forever for my money back!


10 people like this
Posted by Counterclockwise
a resident of University South
on May 15, 2015 at 9:50 am

Easy fix: ensure you owe money at tax time, and be grateful if somebody else covers it.


9 people like this
Posted by What??
a resident of Barron Park
on May 15, 2015 at 9:52 am

$85,000 refund?


2 people like this
Posted by Don't Let Them Owe You
a resident of Old Palo Alto
on May 15, 2015 at 10:54 am

Another solution is to calculate better how much you will owe for the year, and only let the gov withhold that much. Better to pay a little at tax time than to let the government over-withhold all year.


6 people like this
Posted by IRL
a resident of Another Palo Alto neighborhood
on May 15, 2015 at 11:27 am

@Don't Let Them,

This used to be easier, but then Schwarzeneggar changed the withholding rules so that the state takes tons of our money up front so they have it all at the start of the year. Brown shows no inclination to put that back the way it was.

Ever since, we have had a terrible problem with cash flow, and getting the balance between the feds and state right. This year, we had to pay thousands to the fed and will get thousands back from the state. It's impossible to get the withholding right.

It may not be a problem for residents like the Daubers, but for us it's a huge problem, we end up borrowing money because of the cash flow problem it creates for us.


13 people like this
Posted by Michele Dauber
a resident of Barron Park
on May 15, 2015 at 11:32 am

We didn't over withhold. It doesn't say we claimed a refund. It says the fraudster claimed a refund. The criminals submitted a false return claiming a refund and tried to take a refund out of our properly withheld taxes. We owed money which is why it didn't matter that much to straightening it out. We explained that to the reporter but I guess she did not make that clear.


1 person likes this
Posted by CW
a resident of Crescent Park
on May 15, 2015 at 3:34 pm

[Post removed.]


5 people like this
Posted by anonymous
a resident of Duveneck/St. Francis
on May 15, 2015 at 4:51 pm

Thank you for sharing this important story.
We all need to be on guard fending off identity theft, whether with our banks, credit cards, medical (Anthem Blue Cross, anyone? -- like us --), the IRS and etc. I hope politicians and institutions will step up security measures, they are SORELY NEEDED! Despite being extremely careful with finances, privacy and so on, I have had ID theft related incidents a few times. The medical one noted above has been stated to us as potentially long-lasting and very serious (as opposed to having to close out a credit card, get a new one); I am quite worried. In my experience, young persons are oblivious to online and other privacy/hacking/ID theft risks. I advise parents of high schoolers (who may still listen to their parents), to please try to advise them of these risks. Oh, and check your accounts frequently - that's one key safeguard....


Like this comment
Posted by Palo Alto
a resident of Adobe-Meadow
on May 17, 2015 at 12:23 am

[Post removed.]


Like this comment
Posted by 1998 called...
a resident of Crescent Park
on May 17, 2015 at 5:56 pm

"The Daubers went to their bank and created passwords with special codes."

and what's it's computer security back.


1 person likes this
Posted by enough!
a resident of Charleston Gardens
on May 18, 2015 at 11:24 am

My mom gets scam calls now at least once a week. She's 82. She now just slams the phone down.


1 person likes this
Posted by Eva
a resident of Ventura
on May 18, 2015 at 11:49 am

Sorry to hear about this scam and glad they caught it on time. I've gotten many calls from the "IRS" that were phoney but never knew about this scam. Good to know about it.


3 people like this
Posted by Palo Alto Resident
a resident of Old Palo Alto
on May 18, 2015 at 11:56 am

I received a recorded call from the IRS last week. The recorded call said I needed to call the IRS immediately, because they were about to file a law suit against me. I just hung up. I suspect it was a scam. My understanding is that the IRS communicates via letters.


Posted by Brad
a resident of Community Center

on May 18, 2015 at 12:12 pm


Remember me?
Forgot Password?
Due to violations of our Terms of Use, comments from this poster are only visible to registered users who are logged in. Use the links at the top of the page to Register or Login.


7 people like this
Posted by Old Fashioned
a resident of College Terrace
on May 18, 2015 at 12:46 pm

I'm sorry to be so old fashioned about these things but how about filing your taxes via the good old U.S. mail service. Even my Tax accountant encourages me to use the U.S. Postal Service.


6 people like this
Posted by Dorrit
a resident of Another Palo Alto neighborhood
on May 18, 2015 at 1:17 pm

This happened to friends of ours, and it turned out to have been committed by someone at the mortgage lender's office who had ALL of their vital statistics! They had just bought a couple of rental properties a few months before filing their taxes.


8 people like this
Posted by Katie
a resident of Downtown North
on May 18, 2015 at 1:21 pm

Too bad the IRS can not be a little bit more diligent. Wouldn't an $85,000.00 refund send up red flags. What do they have an IBM robot churning out the refunds!

Scary


4 people like this
Posted by kathyk
a resident of Los Altos Hills
on May 18, 2015 at 8:17 pm

Same thing happened to us, but in our case it was the IRS who flagged it and contacted us. They noticed the person filed as me alone, rather than jointly. But how do they get our W-2s? Or do they just make it up?


Like this comment
Posted by Dennis
a resident of Palo Verde
on May 18, 2015 at 9:11 pm

It is likely that the thieves are exploiting a known hole. I believe the following contains excellent advice for plugging that hole:

Web Link

Basically, thieve can create an account in your name. Create your own account and that avenue is closed.


4 people like this
Posted by Interested Palo Altan
a resident of Leland Manor/Garland Drive
on May 19, 2015 at 1:04 am

The IRS is sorely short-staffed, thanks to this 19th century conservative congress. Congress has repeatedly refused to add additional funding for staffing for the IRS. Instead, they "sue" the IRS for enforcing reporting of "tax-exempt" right wing organizations. If Palo Altans are really serious about IRS tax fraud, contact Mitch McConnell, John Boehner and their ilk regarding how IRS scammers have affected your lives. That is the only way for the scams to be dented. Congress has also failed to act to increase funding for safer computer systems to protect our individual finances and hacking done by the Chinese, Russians and others.


3 people like this
Posted by Michele Dauber
a resident of Barron Park
on May 19, 2015 at 7:40 am

@kathy -- they just make up W-2 amounts based on your prior year or whatever data they have access to. The worst part of this is feeling like you don't know what information is out there, where it came from, how it is being used or sold, etc. The good news is that once you lock your credit you stop getting unsolicited free credit cards in the mail so there's that consolation I guess.

@katie, right. Yes. Exactly. you would think that if a couple that has never had a refund suddenly requests an enormous refund that would trigger some kind of automated fraud flag. It didn't. This is a very serious issue for those people who are waiting for refunds. If someone fraudulently claims and receives your refund it can take up to 2 years for the IRS to clear this up and send your refund. For working class people, those refunds are an essential part of their annual budget. They put off needed major purchases (car repairs, dental care, eyeglasses, appliances, heating oil, etc.) until the refund comes. Without it, they often are unable to make ends meet. It is absolutely shameful that the government online filing system allows for this kind of massive fraud and has no protection at all for working and middle income Americans who rely on that money. In our case, as we were not receiving a refund the consequences so far have been minimal (though I am very fearful that our information is probably being sold and re-sold) and we caught it quickly. For low-income people awaiting badly-needed cash refunds, this is just inexcusable.


1 person likes this
Posted by Craig Laughton
a resident of College Terrace
on May 19, 2015 at 8:02 am

If America had a consumption-based tax instead of an income tax, none of this tax fraud would be possible. For example, all taxes could be collected as a VAT (value added tax)...thus would be reflected in the final sale price. An exemption for 'lifeline' products (e.g. qualified food items) would prevent regressive effects for the truly poor.

Such a consumption tax would be paid over a very broad base, and any tax increase would be felt by the same broad base (especially if the VAT is shown on every receipt). More importantly, individuals would not need to file any income tax documents...their tax would have already been paid.


Like this comment
Posted by IRL
a resident of Another Palo Alto neighborhood
on May 19, 2015 at 10:01 am

@Michele Dauber,

That's a really good point. You would think the IRS would find it easier to verify who you are once alerted to the problem, and spend those two years working on preventing such problems in the first place... But I suspect with the IRS it's more a matter of resources for dealing with something new that falls outside of their normal processes. They probably need a more savvy tech division that can be more nimble, so that the first time something like this happens, they can patch the "hole"....


1 person likes this
Posted by Karen
a resident of College Terrace
on May 19, 2015 at 4:25 pm

I like the concept that Craig Laughton mentions, a consumption tax. It would eliminate 100% of individual IRS tax returns, and state tax returns and the frauds associated with them. It is an old idea, but a very good one.

Imagine that we would not need to suffer each year, worrying about our income tax deadlines.


4 people like this
Posted by consequences
a resident of College Terrace
on May 19, 2015 at 6:32 pm

The downside with a consumption tax is that in order to match the current tax revenues, the tax rate would result in a net tax increase for pretty much everyone except the wealthy (and I've read that it would have to be over 50%).

And if you believe that a tax is a deterrent, then wouldn't a large consumption tax reduce GDP?


Like this comment
Posted by Taxpayer
a resident of Palo Verde
on May 20, 2015 at 10:18 am

Michele and Ken, thank you very much for letting your story be told. It really brings the threat home. I'm so sorry it happened to you, and best wishes for no further problems.


Sorry, but further commenting on this topic has been closed.

Salt & Straw Palo Alto to open Nov. 23
By Elena Kadvany | 0 comments | 4,372 views

Lakes and Larders (part 2)
By Laura Stec | 0 comments | 1,493 views

Can we ever improve our schools?
By Diana Diamond | 9 comments | 1,397 views