Virginia Outlines Initiatives to Curb Refund Fraud

By Mike Mariani, Tax Associate

Each year, thousands of taxpayers fall victim to tax-related identity theft.  At both the federal and state level, identity thieves are using innocent taxpayers’ personal information (i.e., name and Social Security number) to file tax returns claiming fraudulent refunds.

Tax Return Fraud

Similar to other state tax departments, the Virginia Department of Taxation (the Department) has reported an increasing trend in the number of fraudulent refund returns filed each year.  During Fiscal Year 2007, the Department denied 338 refund returns claiming total refunds of $1,197,945.  Most recently, during Fiscal Year 2016, the Department denied 28,481 refund returns claiming total refunds of $27,208,909.[1]

In a recent update on its website,[2] the Department outlined several of its safety initiatives aimed at preventing personal income tax refund fraud.  Specifically, the Department has established a Refund Review Team tasked with investigating all tax returns that have been flagged as potentially fraudulent to determine if the taxpayer whose name is on the tax return actually submitted it.  As part of its review, the Department will send a letter to the taxpayer to determine whether a tax return was filed and whether the taxpayer received a refund.  During this process, the Department may also request additional documentation to verify the taxpayer’s identity.

PINs

The Department has also issued personal identification numbers (PINs) to taxpayers identified as possible identity theft victims.  These PINs offer yet another method of verifying a taxpayer’s identity when a tax return is filed.  Additional information on how to request a Virginia Tax Personal Identification Number can be found here.

As tax refund fraud schemes grow more elaborate, the Department will continue to collaborate with the IRS, other state tax departments, and the tax software industry to protect taxpayers’ personal information and prevent further instances of refund fraud.

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Sources:

• [1] Virginia Department of Taxation, 2016 Update for Virginia Manufacturer’s Association: Taxation Committee (Oct. 13, 2017).
• [2] http://www.tax.virginia.gov/content/tax-related-identity-theft-prevention.