One of the downsides of procrastinating on your tax return is the higher risk of becoming victim to a tax-related scam.
A case in point is the child tax credit scam, a form of identity theft that targets children. While it’s less well known than many other scams and has been underreported by the Internal Revenue Service, it’s apparently on the rise.
The child tax credit allows you to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17, as long as your child meets certain criteria. Those criteria include relationship to the tax filer, citizenship, place of residence and dependent status.
The child tax credit scam hits consumers in different ways. A taxpayer may steal your child’s Social Security number and use it on their own return to claim the tax credit for themselves. Or a corrupt tax preparer may sell your child’s Social Security number to someone else for a nifty profit. These illegal transactions cost the government and taxpayer dearly.
In one recent example, a Parksley, Virginia woman who ran a small business admitted to obtaining more than $7.2 million in refunds by exploiting the child tax- credit program last year. She filed over 1,700 tax returns with stolen identifications used by illegal immigrants, mostly from Mexico – and kept most of the refund checks for herself, according to Watchdog.org.
In 2013, the IRS handed out between $5.9 billion and $7.1 billion in improper payments because of improper child tax credits that year, according to a report from the Treasury inspector general for tax administration released in late 2014.
“They typically claim someone’s else baby on their taxes in exchange for money, especially near border towns or near low-income cities,” said Cari Weston, a certified public accountant and a senior taxation manager at the American Institute of CPAs (AICPA).
The IRS didn’t respond to several requests for comment, but according to Weston, the agency is very much aware of the problem and is investigating it.
Weston said the child tax credit scam is more difficult to prove than other common scams involving the IRS because the agency first needs to do an audit in order to unveil it.
If your e-file return was rejected because someone else claimed your dependent, you must file it again on paper and mail it to the IRS. You must include a letter explaining your situation and showing proof that you should be the one claiming that dependent.
Next year, remember to file your taxes as early as possible – not just for the peace of mind but to ensure your return is accepted before a scammer steals what’s yours.
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