As was widely reported over the last week, over 100,000 taxpayers’ personal information — including Social Security information, date of birth and street address — was hacked from the IRS Website. We have experienced identity theft for income tax purposes with several clients over the last couple of years, and it’s a very painful process. Usually, someone files a fraudulent return, trying to get a refund. The victim receives an IRS letter asking about a refund, when he has not filed a tax return yet.
The taxpayer has to fill out a new form with the IRS, file a paper tax return and likely wait up to six months (if he is lucky) to get the refund back.
Many taxpayers like to bank on a refund for vacations or other large anticipated expenses. Rising tax fraud is another reason why I would suggest never getting a refund; instead, set aside extra money from your paycheck each pay period.
Many of our trading clients have outside jobs and will get a decent refund due to trader status and MTM accounting. I suggest these clients change their withholding to get less of a refund and more cash throughout the year.
If you’re counting on that large tax refund, this latest case of stolen identity goes to show that it may happen much later than you would like, or not at all.