Why your tax refunds may be late this year

15th December 2016

If you’re getting a tax refund from the Treasury or the state this year, don’t hold your breath waiting for the check. The taxing authorities are in a pitched battle with the tax fraud industry, and the new mechanisms being put in place to detect false tax returns are slowing down the system.

The scope of tax fraud is dumbfounding — $650 billion annually. You could build 30 of President Trump’s border walls for that amount. It’s $100 billion more that the entire Department of Defense budget.

How are those fraudsters stealing that much tax money? It starts with identity theft. They get someone’s name, address and social security number and file an online tax return for them. Turning refunds into cash gets a bit more complicated, but the industry experts seem quite capable of opening and closing bank accounts as soon as the direct-deposit tax refunds hit the account. Their victims, as you might expect, are usually high-income professionals: doctors, veterinarians, executives and business owners.

To combat fraud, the IRS is comparing 2016 returns with prior years’ returns. If they don’t make sense — if the refund seems unusually high — they kick the return and send the taxpayer a letter. The letter includes a code number and instructions to add the code to a paper return and resubmit it through the mail. The process is delaying refunds about one month.

The Ohio Department of Taxation implemented an identity test requirement for all refunds. Taxpayers are asked questions like “what kind of car did you drive five years ago?” or “which of these four people do you know?” Anyone who fails the test has to submit extensive documentation to get their refund. How extensive? I recently had an elderly client who failed the test tell me she’d rather let the state keep her $200 refund than go to the trouble of gathering all of the required documents.

The moral of this story: guard your identity closely. Practice safe use of the Internet, shred private records, keep an eye on your bank accounts, check your credit report regularly and don’t give out your social security number. And be patient if you are getting a tax refund.