Tax Identity Theft on the Rise | Tax Tip of the Week | No. 154

IRS ALERT

There is a lot of discussion about the growing problem of identity theft. Most people think of identity theft as a stolen credit card or a compromised bank account. But many people don’t realize that tax identity theft is becoming increasingly common. The IRS reported tax identity theft as No. 1 on its annual list of “Dirty Dozen Tax Scams.” In fact, many refunds in the 2012 filing season were delayed because of IRS filters that were meant to screen for identity theft on tax filings. When the IRS cannot detect and prevent tax identity theft, it becomes a complex post-filing issue.A growing problemIn general, the incidence of identity theft is increasing worldwide. In 2010, the Congressional Research Service noted that there were 8.1 million victims of identity theft in the United States. In 2011, the Federal Trade Commission reported that one out of four identity theft complaints received were related to tax identity theft, and the IRS detected 940,000 tax returns involving identity theft out of 141 million total returns filed.In 2009, the IRS implemented its identity theft indicator system, which places a “marker” indicating identity theft on affected taxpayer accounts at the IRS. In just two years, the number of indicators created increased 153%, from 254,079 in 2009 to 641,052 in 2011. The IRS Identity Protection Specialized Unit (IPSU) tracked more than 254,000 new cases in 2011, and numbers for 2012 are even higher. The Taxpayer Advocate Office’s workload for identity theft cases has almost doubled in 2012, indicating that internal IRS systems are not sufficiently handling the caseload.The most common form of tax identity theft is refund theft.Refund theft occurs when a thief intentionally uses another person’s Social Security Number (SSN) to file a false tax return to acquire an illegal refund. Usually, this is detected when the IRS rejects an electronic tax return as a duplicate filing or rejects a paper return and sends a notice to the taxpayer. At this point, the identity theft victim has already lost the money and must confirm his or her identity with the IRS to process the return and, if applicable, receive the refund. The majority (85%) of identity theft incidents reported to the IRS involve refund theft.Elderly persons and those who are recently deceased represent the highest percentage of refund theft victims.Now, more than ever, it is important to protect your SSN and date of birth from falling into the hands of identity thieves.If you, or someone you know, has been a victim of refund identity theft let us know.  There are procedures in place to help resolve this issue with the IRS.

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