The Arizona Department of Revenue's (ADOR) Criminal Investigation Unit has prevented approximately 130 million dollars in tax fraud since 2015. That includes more than 10 million dollars recovered so far this year alone from thirteen separate tax fraud schemes. Considering that dollar amount, one might think that tax fraud is common in Arizona. According to the ADOR, typically, only one percent of tax returns are illegitimate and are potential fraud risks. This year, however, tax fraud has increased 50 percent compared to the previous year, and more cases are still pending. Still, fraud persists and is a serious concern every year.

Whether you have fallen victim to a tax scammer or tax fraud scheme or are personally concerned about avoiding an audit or a potential fraud investigation, there are a number of questions you might want answered. Below are some of the most common concerns Arizona residents have about tax fraud.

What is considered tax fraud?

Tax fraud occurs when, in order to reduce the amount of tax liability, a person or business entity knowingly and deliberately falsifies details on a tax return. In an effort to stop paying the full tax obligation, tax evasion (fraud) basically means cheating on a tax return.

Does the IRS look at every tax return?

Yes. Every tax return is checked for discrepancies. If there are any, generally, you will be notified by mail.

When does the Internal Revenue Service investigate tax fraud for an individual?

Cheating is investigated by the Criminal Investigation (CI) unit of the Internal Revenue Service (IRS) if there is evidence that a taxpayer has:

• Not filed a tax return
• Deliberately not paid any outstanding tax debt
• Purposely manipulated their tax situation by claiming undue tax credits or tax deductions
• Completed and submitted a false tax return
• Willfully lied about their income on their tax return

When does the Internal Revenue Service investigate tax fraud for a business?

The IRS focuses on five key areas when deciding if a tax investigation is warranted for a business. An investigation may be triggered when a business:

• Knowingly omits all or some employee cash payments from their return
• Uses a payroll service that does not submit funds to the IRS
• Neglects to file payroll tax reports
• Does not report or pay payroll taxes that are withheld
• Does not withhold FICA taxes from an employee's paycheck

What is the difference between tax fraud and tax negligence?

Tax fraud and tax negligence (or avoidance) are different. Evading taxes through legal loopholes in order to minimize the amount of tax one pays is tax avoidance. Although this practice undermines the spirit of the law, occurs unintentionally, and is not a crime.

Tax fraud, on the other hand, is evading taxes illegally and intentionally. Unlike tax negligence, it is punishable and has consequences that range from penalties and fines to interest on taxes paid and prison time.

How long does it take the IRS to investigate fraud?

Depending on the circumstances, the IRS has up to six years to prosecute illegal tax evasion. In other cases of tax fraud, there is no statute of limitations. The Criminal Investigations Division has special agents who gather details, adhering to a process of preliminary analysis that determines which type of fraud has or has not been committed. If there is no evidence of fraud, there is no referral for prosecution. If there is evidence, prosecution is possible in as little as three months after filing.

What is tax identity theft?

Tax fraud in the form of stolen identity is, unfortunately, quite common in the United States. Each year, billions of dollars are stolen from the U.S. Treasury when millions of criminals use taxpayer information to file false returns. Victims are left with a mess, often not knowing that their data has been illegally used until months (and sometimes years) after the crime has occurred.

Thieves obtain personal information, including their name, date of birth, and Social Security Number (SSN), in various ways. Some methods include:

• Phishing Schemes
• Stolen Mail
• Phone and text scams
• Hacked Email Accounts
• Card-skimming devices
• Unsecured Wi-Fi theft

By creating a fake W-2, thieves are able to file a return using that information and have a fraudulent refund deposited electronically to the bank of their choosing. Most stolen identity fraud occurs when thieves file before their victims and when they go undetected in processing.

How would I know if I have been a victim of tax fraud identity theft?

Generally, most victims learn that a fraudulent tax form has been filed using their information when trying to file themselves electronically. A tax return will be rejected if a return using the same SSN and name. Other victims, those whose SSN was used by someone else to obtain a job, don't find out until the IRS contacts them about additional income being reported that was not included on their tax return.

What should I do if my identity has been stolen and used fraudulently?

Victims of stolen identity tax refund fraud should immediately do three things. First, call the IRS and identify yourself as a tax identity theft victim. The IRS will put you in touch with their Identity Protection Specialized Unit. Second, fill out an Identity Theft Affidavit (Form 14039) and report what happened to the Federal Trade Commission, credit reporting agencies, and local police departments. Finally, file your tax return (don't wait!) and include Form 14039. While you wait for further steps from the IRS, you may receive a letter from them (Letter CP01A) that provides a unique Identity Protection Personal Identification Number (IP PIN). This number will be sent annually so that you can file your taxes each year.

What can I do to prevent from becoming an identity theft victim?

Many identity tax fraud attempts are stopped by Arizona's Department of Revenue (ADOR). However, there are steps individuals can take to keep them from becoming easy prey for savvy thieves.

The ADOR puts out a list of recommendations that include the following:

• Keep all confidential and personal information private and secure.
• Leave any identification you have with your social security number on it at home – don't carry it with you.
• Create strong passwords and never share or reuse them.
• Use anti-virus software on all phones, computers, and other devices.
• When throwing away pieces of mail or other documents with personal identification information, take precautions. Shred when possible.
• Regularly review your Social Security Administration statement and monitor your wage earnings.
• Do not share personal information through social media, email, or text messaging.
• Always ask why when someone requests your social security number. Never give it away when it is not required.
• Unless you are the party that initiated the call, do not give personal information over the phone.
• Check your credit report at least once per year.

How do I report tax fraud in Arizona?

You may become aware of tax fraud involving someone trying to receive multiple refunds, an individual or business trying to avoid taxes illegally, or someone collecting transaction privilege tax without submitting it to the ADR. These cases are handled by the Arizona Department of Revenue's Criminal Investigations Unit and can be contacted via a phone hotline at (602) 542-4023, by mail at P.O. Box 29099, Phoenix, Arizona 85038-9099, or by completing a Criminal Investigation Information Referral online. Tips can also be reported to IRS Criminal Investigations at 1-800-829-0433.