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Thieves Use Debit Cards to Steal Tax Refunds

By Marcia Frellick
April 5, 2012

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As the April 17 tax deadline approaches, some taxpayers will be in for a surprise. When they try to file their returns, they might find that someone has beaten them to the punch.

Tax refund theft has been growing in recent years, and, for thieves, it’s almost too easy. Because Uncle Sam can issue refunds via prepaid debit cards, thieves can easily convert them into cash and make away with the loot.

Easy moneyTh_debit-cards-steal-tax-refund
Thieves need only a victim’s name and Social Security number to file a fake tax return. With that information, they can create fraudulent W-2s, deductions and dependents, and file your taxes before you do, says Tami Nealy, a senior director with identity theft protection company LifeLock.

Criminals can have the refund directly deposited to an account they set up with your information, and then empty the account. Yet the theft doesn’t even have to involve a bank. The IRS announced in 2011 that it would begin offering taxpayers the option of receiving refunds on prepaid debit cards. That benefits users who don’t have bank accounts and want to avoid any fees from cashing a paper check. Yet it also allows thieves to have a card loaded with someone else’s money mailed directly to them. They can then visit an ATM and get cash or just go shopping.

When the real taxpayers try to file, they are told someone has already filed and that their account is blocked. It can take months before the correct return is applied to the legitimate filer.

A growing problem
Last year, the Internal Revenue Service stopped 262,000 fraudulent returns worth $1.45 billion in refunds, according to an IRS spokeswoman. That represents an 81 percent increase since 2010, when the agency caught 49,000 suspicious returns worth $247 million in refunds.

Tampa, Fla., has become a hotspot for tax refund theft. This year, the crimes show no signs of slowing, says Andrea Davis, a spokeswoman for the Tampa Police Department.

During a six-month period in 2011, Davis says, the department intercepted 20,000 pieces of mail containing fraudulent refund checks and prepaid debit cards worth a total of $100 million.

“Law enforcement agencies from all over the country are calling us and asking us how we’re tackling it,” Davis says.

The problem, Davis says, is that preventing tax return fraud is not in the state’s jurisdiction. It’s a federal crime, so states have to rely on the IRS to act on their reports.

Davis says the problem is escalating this year, and arrests mount every week. Sometimes, postal carriers are key in reporting multiple tax returns coming from a single address. Often, however, the discoveries are made during traffic stops or drug arrests.

On March 30, 2012, Davis says, Tampa officers making a drug arrest discovered $14,957 in cash in the vehicle, four fraudulent tax return checks valued at $32,165 and 67 TurboTax debit cards with an estimated value of $600,000. The officers also found a box containing ledgers and pages of personal information for hundreds of people.

The problem has become so prevalent that Tampa police detective Sal Augeri was asked to speak in March before the Senate Finance Committee. He compared the growth in tax return fraud to the spread of crack cocaine.

“When I first became a Tampa police officer 27 years ago, crack cocaine was just hitting the streets. Within two years, it was an epidemic touching just about everyone person in every community. The tax refund fraud scams mirrors the spread of crack cocaine here in Tampa,” he said in his statement.

Protecting yourself
The increase in tax refund fraud isn’t just a matter of people getting sloppy in protecting their personal information. Davis says thieves often pay people in medical offices, schools, car dealerships and security companies to turn over personal information.

An IRS tax fraud sweep in January led to arrests and indictments of 105 people in 23 states who were assisting in the theft of personal records.

Another hurdle to tackling these crimes lies in how the IRS processes tax returns. The IRS currently has an after-the-fact model of processing – it matches a tax return and supporting documents after a return has been filed and processed.

The agency is currently working toward a real-time system that would match documents and refunds at the same time, the IRS spokeswoman says. This would happen at the beginning of processing returns, and taxpayers would be able to fix any returns that contain data that don’t match IRS records. That would help reduce inaccuracies and fraud.

Although many aspects of tax refund theft are out of taxpayers’ control, experts recommend extra precautions, especially during tax season:

  • Don’t mail your tax return from your home mailbox. If that’s your only option, don’t let the envelope stick out in the mailbox or signal mail is waiting by lifting the mailbox flag. This time of year, thieves know tax returns are hitting the mail with all your personal information spelled out.“It’s a one-stop shop for who you are,” LifeLock’s Nealy says.
  • If you get an unsolicited email claiming to come from the IRS, do not open any attachments or click on links. The IRS never contacts taxpayers about their accounts through email, text messages or other social media. If you do get a suspicious email, forward it to the IRS at
  • Watch out for fliers and brochures that say credits or refunds are available without proof of eligibility. And steer clear of unsolicited offers to prepare a return and split the refund. These things often signal a scam in which criminals try to get victims to file false tax returns.
  • If you’re thinking about using a service to file online, don’t click on any offers sent to you. Research which company you want to use, then type in the URL yourself to make sure you are going to the official site. Check to see that the URL starts with “https” instead of “http.” The former indicates that you are using a secure site, Nealy says. The information being transmitted is encrypted and won’t make sense to someone trying to intercept wireless transmissions.

If someone has filed a return in your name and the IRS suspects identity theft, the agency will send you a letter. Contact the IRS to make sure it is a legitimate letter, then respond immediately to the information requested. You will be asked to fill out an affidavit.

The IRS spokeswoman says there are no plans to limit the ways people can receive refunds for increased security.

“The vast majority of Americans aren’t going to have any problems going through the system,” she says. “So it’s really up to [taxpayers] which direction they choose.”




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