Are you upset at the new tax prep franchise in the strip mall down the street that is siphoning off some of your return business?

With national advertising campaigns and well-recognized logos, independent preparers rightfully see these as competitors, even threats. But they may not be all that they appear, according to Raul Vargas, manager of fraud operations for Identity Theft 911, which works with major insurance and financial institutions.

When e-filing became popular and easy to do—around the 2009 filing season—there was a large increase in two different types of strategies that ID theft fraudsters used, he observed. “The first was to set up bogus brick-and-mortar tax-filing locations and give them the name of one of the widespread franchise services,” he said.

“These locations would pop up and then disappear just as quickly," Vargas added. "They would save people’s returns and file them in one large batch, with a bogus account. On the day they filed they would know the payout schedule and have all the funds directed to the same account on the same payout day, and then disappear. Fraudulent brick-and-mortar shops peaked in popularity about two years ago.”

Of course, the fraudsters also developed online Web sites that posed as legitimate tax preparation sites of major services, he noted.

“They would use these to gather legitimate information and then file returns and redirect the refunds to the fraudster’s account,” said Vargas.

There is also a market for the information itself. “They collect PII [personal identifying information] and sell it, as well as use it themselves,” he said.

Moreover, there is a recent spike in minors’ Social Security Numbers being used as dependents in tax fraud cases. “It’s not just fraudsters filing as the victim any longer, it’s now fraudsters using minors’ PII to claim additional dependents on phony returns,” said Vargas.

While IRS Form 14039, Identity Theft Affidavit, was a step in the right direction, it’s not perfect, he observed.

“It didn’t exist two tax seasons ago, but they are attempting to use the same form for multiple issues, which may be causing some of the problems,” said Vargas. “The form was their solution to anyone having any type of identity theft issue. The way it is designed, a person who lost their tax documents, has no fraud, and simply wants to notify the IRS, completes the same form and sends it to the same location as someone who has had repeated identity theft on personal W-2 tax returns or a business owner whose TIN has been used fraudulently.”

Unfortunately, the IRS’s ability to respond has decreased. “Victims are currently waiting 204 days to hear back on their initial claim,” Vargas pointed out. “That’s not the time it takes to resolve the claim. That’s the time it takes for the IRS to acknowledge that they received your claim. They seem happy advertising a 36 percent increase in the number of fraudulent returns they didn’t pay. That doesn’t seem like much of an accomplishment when you compare it to the number of fraudulent returns they did pay, which increased over 500 percent.”

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