VT suspends tax refunds over fraud concerns

MONTPELIER – The Vermont Tax Department has temporarily stopped issuing personal income tax refunds to Vermonters because of potential refund fraud.

The state had received 38,811 tax returns as of Friday. The department has suspended sending refunds to about 8,500 taxpayers, who have returns pending, Tax Commissioner Mary Peterson said.

It was unclear when those taxpayers might get refunds.

Peterson stressed the potential identity theft and refund fraud is unrelated to any breach of Vermont government systems. She said the fraud appears to come from the use of identities stolen elsewhere.

"Criminals are getting ever more creative," Peterson said.

Vermont processed 375,741 personal tax returns for calendar 2013, the department said. That number excludes returns for any businesses or other entities.

The department said it halted tax refunds as of Wednesday. It did not disclose the problem to taxpayers until Friday morning in a news release.

"We are still encouraging people to file," she said.

Once the department determines a return is legitimate, it will process the return. She said any refund checks will be mailed to the address provided.

The department is holding off sending refunds to taxpayers that indicated they want either direct deposit or loading of a debit card. Those refunds can be gone before the true taxpayers would know they had been duped, Peterson said.

The possible refund fraud is the latest problem for the state tax department.

Peterson said the focus is on returns being filed electronically. She said there were "red flags" that caused the department's concern.

Peterson noted TurboTax had shut down the software that allows taxpayers to file returns electronically. The department also is checking with vendors.

MORE: TurboTax halts state filings amid fraud outbreak

Deputy Tax Commissioner Greg Mousley said Minnesota, Utah and Georgia also have announced they have stopped processing tax returns until they can fully investigate.

He said there may be other states may take the same preventive stance as the word begins to spread.

Refund fraud occurs when thieves file bogus tax returns using stolen identities, including Social Security numbers.

To combat the problem, the Tax Department says this year it's issuing only paper checks to first-time filers, since fraudulent refunds are often associated with first-time returns.

Vermont started accepting tax returns on Jan. 20. The early returns often come from self-employed people or when a business provides an early copy of the W-2 form showing wages earned by an employee.

The Vermont Tax Department noted that nobody is immune from identity theft or tax refund fraud. It noted U.S. Attorney General Eric Holder, the nation's top prosecutor, was a victim in 2013.

The Associated Press contributed to this story. Contact Mike Donoghue at 660-1845 or mdonoghue@freepressmedia.com. Follow Mike on Twitter at www.twitter.com/FreepsMikeD.



