Stupid Criminal Tricks

Most clients find out they have been the victim of return identity theft when they receive a notice from the IRS or a charge from a credit card company, but in a recent case one client found out he’d been the victim of identity theft when he got a check – a check that was supposed to go to the ID thief.

Our member filed his return for 2012 in a timely manner and asked that the IRS debit his bank account for balance due. A few weeks later, he received a check in the mail for about $7,500 from TurboTax’s third party processor with the explanation that they could not deposit it directly to his account as asked. The member had never heard of the processor and thought the check was some sort of scam so he just held on to it. In September he realized the IRS had never removed his balance due from his account, so he called TurboTax for an explanation. That’s when he found out that the return transmitted by TurboTax to the IRS wasn’t the one he had prepared and thought he’d filed. Fortunately, he had audit defense so he called us to ask what he should do now that his own return was officially late.

The IRS instructed us to have the member return the check back to TurboTax and have TurboTax write a new check to the IRS noting the taxpayers name, SSN and tax year on it, and to mail in a filed return with the payment due. The member mailed us a signed return with a check for the correct balance due, and we mailed it in with a letter explaining what had happened, along with a copy of the check from TurboTax. We requested that the IRS flag the taxpayer’s account for ID theft, process the mailed return and payment, and apply the TurboTax check back to the taxpayer’s account to wipe out the refund.

From there, things went downhill. The IRS received both checks and the tax return, and the checks were cashed. But they did not apply the TurboTax return to the taxpayer’s account, despite the fact that the name and SSN were on the check memo. The IRS reversed the fraudulent taxes and withholding and assessed the correct taxes and withholding and payments, which left the taxpayer’s account with a balance due in the amount of the ID thief’s refund amount.

In February, the IRS started issuing erroneous refund notices to the taxpayer, demanding repayment, which we replied to twice showing that the TurboTax check had cleared the Fresno service center the previous October. Calls to the practitioner priority line were fruitless, as they said that the ID theft unit had the case and would eventually get the payments sorted out. In the meantime, the member also started receiving scam phone calls from someone pretending to be the IRS, which we told him to ignore. When the IRS issued a notice of intent to levy – despite our being told just three weeks previously that the account was frozen – we called again. This time practitioner priority was able to see that the check was in a temporary account for some reason, and they referred us over to the ID theft unit directly. The ID theft unit couldn’t see the temporary account, but agreed to put a “hard trace” on the TurboTax check to find the payment.

Approximately a month later, practitioner priority confirmed that they had found the check and applied it to the taxpayer’s account. There was still a small balance due because of processing fees TurboTax had not returned to the IRS, but the taxpayer paid those immediately and TurboTax refunded that amount to him. It only took a year plus one month to clear up the problem, caused by the taxpayer being honest and wanting to return the fraudulent check to the IRS. Thus proving that no good deed goes unpunished.