The front page of the IRS Web site and newspapers in places such as South Florida brim with alarming headlines — “IRS Pays Out Billions in Fraudulent Refunds.”
“The IRS has over 500,000 cases a year,” said Scott Graville, a Guadalajara-based tax preparer and financial analyst who has lived in Mexico four years.
“The scale and scope of it is scary. People don’t realize how much of it there is. Identity theft has increased multiples of times in the last ten or 15 years as data becomes digital.”
Identity fraud against taxpayers is often done with large batches of social security numbers stolen from banks or businesses, said Graville’s Chapala-area business partner Marian Wellman. Sometimes the fraud is against people who do not become aware of it immediately, such as children or senior expats who are getting Social Security and are not required to file a return because they don’t earn enough.
“In that case, the person might not even know about it until one and a half years later,” she added.
The IRS corroborates this — “Taxpayers may not be aware they have become victims of identity theft until they receive a letter from the IRS stating more than one tax return was filed with their information.”
One Guadalajara resident reported receiving such a registered letter from the IRS in late 2012. Graville said that only a couple of his clients’ tax returns have been affected. Wellman and another local tax preparer, Patrick Oden, likewise report zero or few tax return problems among their clients. Yet all nevertheless say they worry about such fraud.Another fraud common here in Mexico is IRS refund checks that never arrive, said Oden. “No IRS check that was mailed to a local street address or Mexican post office box has ever made it. On the other hand, I haven’t seen problems with private services like Mailboxes Etc.”
He added that, “I am warning my clients about it, because recouping a check that doesn’t arrive is a lot of effort and I will have to charge an extra fee for it.”
Fixing a case of identity fraud or a mailing problem can be a major headache for taxpayers, Graville agreed. “You may have to spend a lot of money, not to mention your time. That’s why they have credit protection insurance nowadays. It kicks in after you have a problem. They might pay 10,000 dollars to offset lawyer fees.”
“Do you know what happened to me?” Oden asked. “Six months ago, my grandfather in the States got a call saying it was the U.S. consulate in Guatemala and supposedly I was in legal trouble and needed money. They put someone on the phone who sounded like me. They told him not to tell my mother and upset her. He wired them money through Western Union before my mother finally got wind of it and called me.
“It was scary. How did they know I’m out of the country and I have a grandfather? We don’t have the same name.”
“In reality, we’re all exposed,” said Graville. “There’s no foolproof protection. That’s the real challenge. If someone wants to commit fraud on me, it’s possible.”
In the cases of tax identity theft described above, the taxpayer at minimum has to fill out a special IRS form, 14039, contact the Federal Trade Commission and three major credit bureaus and, often, make a report to U.S. police. Later the taxpayer receives a special identity protection personal identification number to use in future tax filings.
Although the IRS may tell taxpayers they are responsible for money paid out to their name in frauds, Graville said that in the end the person is not held responsible if they take these and sometimes other steps.
But he emphasized that taxpayers should be alarmed about the amounts hemorrhaging out from the federal government to criminals. CNN reported in 2012 that the IRS could not estimate how much fraudulent refund money it had issued, but that the agency pegged the dollar amount of detected fraud in 2011 at 6.5 billion. But an eyebrow-raising estimate of the takings in just one geographic area came from police in Tampa, Florida. They say that in 2010 and 2011, local criminals raked in 450 million via fraudulent tax returns, and spent in on expensive cars, jewelry and plastic surgery.
“They get hold of 500 social security numbers, they get a dummy house or P.O. box,” said Graville. “Maybe only 100 get through, but they do it fast, before anyone catches on.”
He offered advice in addition to buying credit protection insurance. “Don’t leave your statements lying around. Shred them. And don’t do a lot of credit applications for loans, credit cards or whatever.” A lot of credit applications mean that your personal information is recorded at many different businesses, he said. The more places, the more vulnerable you are to the dishonest employee at that business.
“In fact, here in Mexico, I use my credit cards less.”
Graville also suggests checking your credit reports with the three major agencies.
Oden agrees. “Everyone is allowed to request their credit report once a year free of charge. You know what credit cards and loans you have. Make sure there is nothing else on your report. There’s a Web site, Experian, where you can get that free report.
“You can also put a security credit freeze on your accounts. I did this when I went out of the country.” That way nobody will be able to fraudulently apply for loans or a credit card in your name, as sometimes happens, Oden said.
Wellman adds another caution — “Remember, the IRS never communicates with you by e-mail. If you get an e-mail claiming to be the IRS, forward it to This email address is being protected from spambots. You need JavaScript enabled to view it..