By Terry Rogers
According to David Gregor, Director of the Delaware Division of Revenue, identity theft related to tax returns is a growing problem, not only in Delaware but throughout the nation. As a result, the department made the decision this year to delay the release of all tax refunds to Delaware citizens until February 15, 2017. The decision is similar to the Internal Revenue Service (IRS) delay of tax returns that claim Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC). However, rather than delay only a select few returns, Delaware chose to delay all returns.
“Last year, Division of Revenue staff identified and stopped more than $9 million in fraudulent refund claims,” Mr. Gregor said. “This decision was made collectively by the division’s staff tasked with this responsibility. The decision was made prior to my appointment as Director of the Division of Revenue, but I think it was the right call and concur with the adoption.”
According to the IRS website, the delay at the federal level was created under a law passed by Congress that required the IRS to withhold the entire refund until at least February 15 in order to guarantee that the taxpayers receiving the refund get what they are owed and that they are not the victims of fraud. Taxpayers are encouraged to file their taxes as early as possible even though they may not receive their refund as early as they have in years past.
At the state level, Mr. Gregor says that the delay provides the division time necessary to collect data from employers and integrate the data into process. This makes it easier to spot fraudulent refund claims.
“Although I cannot speak on behalf of the IRS, EITC returns typically have higher error and fraud rates than other turns,” Mr. Gregor said. “Because the EITC is refundable at the federal level, I would expect that the IRS concluded that it needs to be especially vigilant in this area. Although the website indicates refunds will not be sent until February 20, we are targeting February 15 as the date after which refunds will be issued. The date selected represents our need to balance taxpayer service in the form of efficient refund processing with our duty to protect taxpayers’ identity and prevent fraud.”
Mr. Gregor says that the state uses three approaches to protecting the identity of someone filing a tax return. They use datasets that are available to them to reconcile and confirm the validity of what is reported on a tax return. Returns that meet certain criteria are inspected and validated by staff before they are processed. Finally, the state communicates to other states, the IRS and software vendors to ensure that they are up-to-date with the latest developments regarding fraud protection and prevention.
In February 2016, the IRS warned that it had seen a 400 percent increase in identity theft attempts for the 2015 tax year filing season. Even more concerning, the IRS paid almost $6 billion in fraudulent returns. Mr. Gregor says that if a taxpayer is notified when they attempt to file electronically that a return has already been filed, they should contact the Division of Revenue immediately in order to resolve the issue. In most cases, if the state return has been compromised, the federal return will be as well, so the taxpayer should also contact the IRS. Mr. Gregor says there are processes in place to resolve the matter and that the staff of the division can help guide taxpayers through it.
“So far, I have not received any complaints about the refund delays, although others in the division may have,” Mr. Gregor said. “I’m sure that, at some point, some of our customers may become frustrated with the later refund date. On the other hand, what won’t always be obvious to our customers are all the instances in which we prevented fraud and saved them from the aggravation and frustration of having their identities compromised. While there is no failsafe step one can take to prevent his type of identity theft, one word of advice is not to wait until the last minute to file a tax return. If your legitimate return is on record with us, that means that a subsequently filed fraudulent return will be rejected.”
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