March 24, 2009 Tax return fraud becomes more prevalent Play video

(NECN: Peter Howe) - Marianna Golyak has never lived in any state but Massachusetts and New York. That made it all the more bizarre when she called the Internal Revenue Service last year about a tax-return problem and the representative asked: "Have you ever lived in Alabama?''

No, she stressed. "I've never been to Alabama,'' the 26-year-old legal secretary from Brookline, Mass., said. "I don't know anybody in Alabama.''

But someone in Alabama, it turned out, knew her Social Security number, and used it last spring to try to get a tax refund in Marianna's name. It was the beginning of a year-long headache that included having to apply for a Social Security wage report and file a police report, adding up altogether to, she estimates, 50 hours, including time spent on the phone with her designated tax advocate with the IRS.

It turns out Marianna has growing company. "Tax-return-related fraud is an emerging type of fraud,'' says Steven D. Domenikos, president of IdentityTruth.com, a Waltham, Mass., identity-protection company. He's seeing more and more tax-return scams. "Thieves try to file, very early, a return on behalf of someone else so they can divert or reroute the refund.''

Tax-return scams reported to the Federal Trade Commission jumped from 9,500 in 2004 to more than 20,700 in 2007, the most recent figures available. As a percentage of identity-theft complaints received by the FTC, tax fraud has soared from 1.9 percent to 8 percent over the

Compared to stealing credit card numbers, Domenikos said, "that is a better way for the thieves to profiteer. In other words, it has a greater return on investment.'' Domenikos said he knows of one affluent New York attorney who had a $1 million tax refund targeted by identity thieves.

One key piece of advice Domenikos and other experts give: If you get an email claiming to be from somebody with the IRS, don't answer it. The IRS doesn't communicate that way, and bogus e-mails like that are a common "phishing" ploy to get you to give up personal data. Likewise, the IRS will never phone you unless they've written you first and requested a phone number to reach you or your tax preparer.

"If someone calls you pretending to be the IRS asking for personal information like bank-account routing number or so forth,'' Domenikos said, "it's an absolute scam. You need to hang up.'' He also counsels being very careful about using Web-based tax preparation programs rather than ones that sit on your own computer, because there have been reports of companies with insecure computer servers being targeted by hackers who break in to steal Social Security numbers.

If you get a letter from the IRS after you've filed your return saying that someone already filed a return under your Social Security number, and you think you have been scammed, experts advise not to waste any time filing an IRS Form 14026, "Identity Theft Cover Sheet." You need to also file a police report with your local police department or an Identity Theft Affidavit with the FTC in order for the IRS to process your complaint.

A year after she first filed her 2007 tax return, Marianna Golyak is still out over $1,500 from last year's refund she was owed and still hasn't gotten and last summer's $600 stimulus check she never received. This is the mess that keeps on giving, for her.

"I did file electronically this year. My taxes were rejected this year electronically. So I did have to paper file,'' Marianna said. And she still doesn't know who it is in Alabama who knows her Social Security number -- and how they got it.