Vermont is participating in conversations with other states and with software vendors, and in an abundance of caution, has immediately suspended the issuance of all personal income tax refunds temporarily as of February 4.As the tax season heats up, the Vermont Department of Taxes continues its vigilance to protect taxpayers and taxpayer money against any possible tax refund fraud, but the early signs are that states are seeing another increase in fraudulent filings this year. In fact, there are reports in other states of particularly troublesome fraud trends. Given the nature and level of fraudulent activity, concerns are being raised that a tax preparation software vendor experienced a data breach of previous year returns, however no such breach has been confirmed. The department isreviewing the situation, and will issue an update on when we will resume refunding as soon as possible. The potential identity theft and refund fraud is not related to any breach of Vermont government systems, but rather the use of identities stolen elsewhere.
What is Refund Fraud?
Refund fraud occurs when a criminal uses stolen identification of a taxpayer, including Social Security Number, to create a phony return. Often the criminal will use software to generate fraudulent returns in multiple states using the same stolen identification. Identity theft is a well-known problem, and can result from a data breach, scam, or loss of a wallet. The Vermont Department of Taxes has not experienced a data breach, rather criminals are capitalizing on identities that they have stolen elsewhere to victimize Vermont taxpayers.
What Can I Do?
Be assured that the Vermont Department of Taxes will work to get every legitimate taxpayer, including victims of refund fraud, their refund as soon as possible. No one is safe from this problem; in 2013 the top law enforcement officer in the land, U.S. Attorney General Eric Holder, was the victim of identity theft and tax refund fraud. However, there are steps to you can take to avoid identity theft in the first place, and you should review the resources available on the Department website,http://www.state.vt.us/tax/idtheft.shtml, and the IRS website,http://www.irs.gov/Individuals/Identity-Protection. If you suspect that your identity has been stolen, you should act quickly to prevent refund fraud. Criminals will be stopped in their tracks if a legitimate return has already been filed for the taxpayer. You can check if a Vermont return has been filed under your Social Security Number here:https://secure.vermont.gov/TAX/refund/.
If you have not yet filed a return and suspect a refund has been fraudulently requested on your behalf, you should complete the IRS Identity Theft Affidavit (Form 14039,http://www.irs.gov/pub/irs-pdf/f14039.pdf), and submit it to the IRS and the Department. You should call the Department directly at802-828-2865or toll-free in Vermont at866-828-2865. If the IRS or the Department has identified a return filed under your Social Security Number as suspect, you will receive a letter and you should promptly follow its instructions. The IRS will issue you a special PIN to enable the filing of a return if your identity is at risk. Please note that a common scam is for criminals to impersonate an IRS agent and ask for your Social Security Number. Never send your Social Security Number over email, and do not give identifying information over the telephone unless you have initiated the contact.
Should I Avoid Using Tax Preparation Software?
There have been well publicized data breaches in recent years at national stores, insurance companies, local merchants – the list is endless. You should carefully review the security features of any tax preparation services that you are considering, and you should contact the vendor directly with questions and concerns, particularly about the security of your past filed returns. Please know that the Department also receives fraudulent paper returns. The Department continues to believe that e-filing is the best means of ensuring a speedy and accurate return.
What is the Vermont Department of Taxes Doing About Refund Fraud?
The Department takes its responsibility to guard against fraud very seriously, and in unusual circumstances, including this week, suspends all refunds temporarily to perform additional review. Criminals often route fraudulent refunds to bank accounts, or increasingly debit cards, which are extremely hard to trace. This year we have instituted a new step to issue only paper checks to first time filers, including those who change their filing status, since fraudulent refunds are often associated with first time returns. We also are considering whether the level of fraudulent activity this year warrants the discontinuance of refunds to debit cards altogether. If we were to take that step, any requests for a debit card refund would instead result in the issuance of a paper check.
We have a number of carefully designed safeguards in place throughout our processing to flag suspicious refunds. Most notably, starting in 2011 we have employed proprietary data warehouse software that scans each return for suspect markers, and suspends those refunds for a manual review. We are constantly reviewing new markers of fraud. We have devoted additional staff to such review. We also share information and participate in regular fraud alert calls with the IRS and other states. Last year alone we stopped over 800 fraudulent refunds, protecting legitimate taxpayers and saving the state over $1.5 million.
Source:Vermont Department of Taxes 2.6.2015