WEST PALM BEACH, Fla. — Taxpayers filing basic 1040 returns can hit the send button to the Internal Revenue Service beginning Wednesday.
The IRS pushed the start date back by eight days to accommodate late tax-law changes enacted Jan. 2. In 2012, more than 80 percent of taxpayers filed electronically, and e-filing began Jan. 17.
Last year was a big year for tax-return fraud, too. And one of the key recommendations to avoid a months-long delay in recovering a return is to file early.
The IRS said it will begin accepting tax returns Wednesday after updating forms and completing programming and testing of its systems. That means the vast majority of tax filers — more than 120 million households — should be able to start filing.
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The remaining households with more complex returns, such as taxpayers who itemize, will be able to start filing in late February or into March because of the need for more extensive form and processing-system changes the IRS has yet to complete. This group includes people claiming residential energy credits, depreciation or general business credits.
“It will place a burden on small-business owners,” said Jarrett Perry, a CPA and partner in Perry & Associates, an accounting firm near West Palm Beach, Fla. They are required to have returns filed by March 15.
“We have people dropping off corporate tax returns. We are waiting on the tax software to come up with the forms so we can finish the returns,” Perry said.
Along with returns from taxpayers eager to get refunds as soon as possible, fraudulent returns from scammers are expected to hit the IRS on Wednesday.
“The IRS is still expecting, and law enforcement in general is expecting, a deluge of fraudulent tax returns being filed this year,” said Latour “L.T.” Lafferty, an attorney who heads the white-collar-crime division of Fowler White Boggs, a firm based in Tampa, Fla.
If the legitimate taxpayer is beaten to the punch by an identity thief, then the taxpayer has to prove he is the legitimate filer by verifying his identity.
The criminals use false financial information. When the taxpayer files a return, the IRS discovers someone already has filed using their Social Security number. The taxpayer has to fill out an IRS identity-theft affidavit, file a report with local law enforcement and notify the Federal Trade Commission.
Since last tax season, the IRS has increased the number and quality of identity theft-screening filters that identify fraudulent returns before refunds are issued.
“I think the filters will work, and they will detect some fraudulent tax returns, but not all of them. It could slow down some legitimate tax returns,” Lafferty said.
Tax preparers report that some clients who lost their refunds to criminals have yet to receive their money. In past years, some have waited as long as 18 months.
Increasingly, tax-fraud victims have turned to members of Congress for help, and the filers’ refunds are expedited with a wait time of 30 to 45 days.
In 2011, the office of Sen. Bill Nelson, D-Fla., heard from 70 victims of identity-theft-related tax fraud. In 2012, that number rose to 871, said Nelson spokesman Ryan McCormick.
The problem has been growing every year.
Taxpayers stand to lose $21 billion in refunds to identity thieves over the next five years, according to a Treasury Department report in July. A department investigation found that the IRS issued $5.2 billion in refunds for fraudulent 2010 returns. In addition, the IRS detected and prevented $6.5 billion in fraudulent refunds.
“We think most of the identity thieves are using Social Security numbers for non-filers, such as children and deceased people that are unlikely to be identified,” McCormick said.
Nelson and Sen. Tom Coburn, R-Okla., are preparing to reintroduce a bill to restrict publication of The Death Master File as part of a larger tax-fraud and ID-theft measure. The file contains names and Social Security numbers.
Often, hundreds of fraudulent refunds are deposited into a single account. Nelson’s office expects that the IRS will work with financial institutions this year to prevent that.
A pilot program that began in Florida allows fraud victims to sign a waiver that allows the IRS to share their information with local law enforcement. It has been expanded to eight more states.
Currently, W-2s have to be in employees’ hands by Jan. 30, but information employers send to the government is not due until the end of February.
The IRS said this month it has issued identity-protection personal identification numbers to more than 600,000 taxpayers who were victims of tax fraud. That is more than twice as many as the previous year.