File Early, File Often!
Yes, you read it correctly! With the filing season upon us, unscrupulous individuals will file as many fraudulent refund tax returns as possible prior to legitimate taxpayers filing their returns. These fraudsters may modify their own tax return or use another individual’s information (identity theft), fabricating wages, withholding, or other information in order to obtain a refund.
The Fraud and Discovery Section (FADS) implemented an effective prevention and detection program. FADS detected $78.5 million in attempted fraud during the 2012 calendar year, including $14.4 million in identity theft. Even with these results, fraudsters continue to test the system looking for weaknesses. We use multiple methods to limit fraudulent activities, such as:
- Verify all W-2 data by matching Employment Development Department data with tax returns.
- Utilize computer data enhanced modeling techniques for early detection.
- Compare historical tax return data for discrepancies.
- Contact businesses for employment verification.
- Manually review all questionable tax returns.
- Research informant referrals.
- Monitor questionable tax preparers.
Although we have fraud detection criteria in place, we suggest you use some of the following techniques to alleviate challenges associated with personal income tax fraud.
- Create the “perception of detection.” Send a message to your clients that you actively look for fraud. Increase the perception that fraud will be detected, and it will substantially lessen the likelihood of its occurrence.
- Provide fraud awareness training to your staff; keep them informed about fraudulent activities.
- Know your client.
- Have you done business with the individual before?
- Does your client live or work near your office or have they traveled a significant distance?
- Scrutinize W-2s.
- Is all pertinent information (social security number, federal/state employee identification numbers, state disability insurance, wage and withhold information, etc.) available?
- Are multiple clients using W-2s with the same employer for wages and withholding? (Look for patterns.)
- Are W-2 forms typical for that employer or have they been downloaded from the Internet?
- Confirm employment information.
- Have you verified that the social security numbers are correct?
- Is your client familiar with what their employer does and where the company is located?
- Does your client know what they do for a living?
- Are wages reasonable for the type of work performed and time on the job?
- Question dependent information.
- Is your client familiar with their children’s names, ages, or birthdates?
- Does your client know the name, address, and phone number of their dependents care provider?
- Review business deductions.
- If your client is claiming business income, do they have records to substantiate associated deductions?
- Does it appear that business deductions are overstated and are they typical for the specific business?
Early detection is critical as inaccurate data may impact you, your client, and us. With this in mind, share questionable activities with FADS. It enables us to expedite the tax refund process and prevent the release of erroneous refunds.
If you have concerns, fax copies of questionable W-2s and your contact information to 916.843.6034. Our goal is to confirm the validity of W-2s within 24-48 hours.
Additional precautions you may take before you transmit the tax return include:
- Contact the employer.
- Use MyFTB Account to:
- Obtain California wage and withholding information.
- Verify estimate payments before filing tax returns.
- View FTB-issued 1099-Gs and 1099 INTs.
- View recent payments applied to accounts.
To accomplish this, go to ftb.ca.gov and search for MyFTB Account.