File a Tax Return – Even if the IRS Says You Don’t Have To

An experienced accountant recently advised me to have all my clients file a federal and state income tax return whether or not the client’s income was high enough to require it.  With the increase in identity theft and cybercrime, if a social security number is unlawfully obtained and used to file tax returns seeking a refund, the senior may never know that it is being done!  The IRS estimates that it sent out nearly three million fraudulent refunds out to con artists in 2013, which cost taxpayers $5.2 billion that year alone.  The Treasury Department predicts that by 2016, that number will be over $21 billion per year.  These con artists are nearly impossible to catch, since many of the IRS refunds are paid out to prepaid debit cards that do not need to be registered.  It is the senior whose social security number was stolen that will have to pay back all of the improper refunds made to the thief.

Seniors are often the hardest hit because many do not file returns each year because their income is below the mandatory filing limit.  This means that years can go by, with a scammer filing false returns on their social security number, before the identity theft is discovered.

If a return is filed, the maximum exposure would be one year as the IRS will reject the senior’s 1040 return if someone else had previously filed a return under that same social security number.  The senior, and the family, is thereby alerted to a theft issue and it can be addressed.  Heirs may have a big surprise from the IRS if the theft is not caught and many years go by with the thief filing the false returns and pocketing huge sums of money.  They will take off and leave the senior with the bill!

By catching an identity theft in the first year, the exposure is limited and may be minimal.  Filing as early as possible is therefore also suggested to stop any thief from filing a fraudulent return as his filing will be rejected due to a previous legitimate filing.  The good news is that the IRS is catching more fraudulent returns each year, but the numbers that get through are still staggering.  The IRS still does not have a truly effective way to stop tax return fraud, so filing returns each year may be the best way to protect yourself from getting stuck with a bill when someone else cashes out on your social security number.

This entry was posted on Thursday, June 25th, 2015 at 10:23 pm and is filed under General Legal.