Alabama takes new approach to fraudulent returns

MGN Online
MGN Online

MONTGOMERY, Ala. (AP) – Alabama is taking a new approach to protecting taxpayers against crooks filing fraudulent income tax returns using stolen identifies.

The state Department of Revenue said those filing their individual and joint tax returns electronically should include their driver’s license number or non-driver’s license number and their date of birth. That applies to the Form 40 long tax return, the Form 40-A short return, and Form 40-NR for non-residents.

“It’s not big brotherish,” State Revenue Commissioner Julie Magee said.

She said the additional information is for protection against identity theft and fraudulent tax returns. She said the information can be validated quickly using records from the state Department of Public Safety, and it will not affect the normal processing of a tax return.

At the National Association of Tax Professionals in Appleton, Wis., spokeswoman Abby Crawford said the organization is not aware of any other state using driver’s license numbers to address identity theft.

At the Federation of Tax Administrators in Washington, Deputy Director Verenda Smith said the national organization of state tax officials is also not aware of any other state doing it, but Alabama may start a trend. She said states are trying a variety of ideas – some visible to the public and some not – to reduce fraudulent returns, but it is difficult.

“It’s a problem like chasing a virus. It morphs every time you touch it,” she said Wednesday.

In a report issued last year, the Federal Trade Commission said Alabama ranked 12th among the states for identity theft complaints of all types, with an average of 82.5 complaints per 100,000 residents during 2011.

In an interview Tuesday evening, Alabama’s chief tax official said the problem of people filing fraudulent state income tax returns is not as widespread as it is with federal tax returns. But she said her department gets hundreds of calls each year from Alabamians who have tried to file their returns electronically and had them rejected because someone has already filed a return using their name and personal information. Those fake returns use made-up numbers and claim a refund larger than the legitimate taxpayer would receive. She estimated the state is losing millions each year due to fake tax returns.

“Before a tax refund is issued from a taxpayer’s account, it is reasonable for a taxpayer not only to expect, but also to demand that the department takes every precaution that it can to ensure that the refund is a legitimate refund and not a fraudulent refund issued to an identity thief,” Magee said.

Magee said some online tax preparation services already require customers to submit their driver’s license numbers as a security precaution.

She said the driver’s license information is not being sought on traditional paper returns because identity theft is mostly a problem with tax returns filed electronically.

A spokesman for the Internal Revenue Service said driver’s license numbers are not required on federal income tax returns. Instead, the IRS assigns a special personal identification number to victims of identity theft to provide security on their next returns. The IRS said it expects to provide more than 1.2 million taxpayers nationwide with the special number for this tax season. That’s double the number from a year ago.

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