By Teresa McUsic
The Federal Trade Commission held Tax Identity Theft Awareness week in January--and there are a number of things all tax filers should know about this problem.
One is that it is growing rapidly.
In 2010, tax identity theft—or fraudulently filing for federal taxes in someone else’s name to claim their refund-- accounted for just 15 percent of the identity theft complaints from consumers to the FTC.
By 2012, that category grew to more than 43 percent of the identity theft complaints--making tax identity fraud the largest area of complaints by a substantial margin.
“Tax identity theft is a significant and growing issue,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “It’s critical that we make sure consumers are aware of how they can prevent it, and if they are victimized, what steps they can take to recover as quickly as possible.”
To help, the IRS added more than 3,000 employees last year to work specifically on ID theft, more than double the number from the year before, said Clay Sanford, IRS spokesman in Dallas.
The agency also said it has stopped 14.6 million suspicious returns with $50 billion in fraudulent refunds from being processed over the past three years, Sanford said. But those numbers also shows a huge increase in the problem. In 2010, just 49,000 returns involving $247 million in tax refunds were stopped by the agency.
In addition, the IRS initiated 1,492 identity theft related criminal investigations last year, an increase of 66 percent over the year before, Sanford said.
But the agency’s process is cumbersome for victims, according to a report by the National Taxpayer Advocate.
“The IRS has consistently refused to adopt the single point of contact approach that would provide sensitive, holistic assistance to victims of a traumatic crime,” Nina Olson, head of the watchdog agency in her annual report to Congress. “The IRS seems to be throwing bodies at the problem, without addressing fundamental problems with its processes.”
Stanford said a typical identity fraud tax case takes six months to resolve. But last September, the Treasury Inspector General for Tax Administration (TIGTA) reported the average cycle time for a 100-case sample of identity theft cases it reviewed was more than 10 months. In addition, the report said most of that time the cases were stuck inactive in various IRS units then resolved with just 35 days of direct contact. ”The National Taxpayer Advocate is concerned that unless the IRS significantly changes its procedures to keep identity theft cases moving, cycle time will continue to increase in the coming year as the IRS struggles to keep up with its inventory. The fact that the IRS cannot accurately track the cycle time of an identity theft case from the perspective of the victim is astonishing, disappointing, and inexcusable,” said Olson in her report.
One reason tax ID theft may be growing is because thieves are getting our Social Security numbers like never before. The Identity Theft Research Center (ITRC) Breach Report showed that in 2013, almost half of the 619 reported breaches included the exposure of Social Security numbers, up 28 percent from the breaches a year before. The 619 data breaches last year involved more than 57 million records.
Another reason for tax ID theft is that the IRS has been pushing electronic tax filing because of a mandate the agency received from Congress, said Matt Davis, a spokesman for the ITRC.
“The e-file system has no third party means of validation,” he said. “We hear from victims all the time saying that after they filed their taxes they learned that someone had already e-filed before them.”
Sanford said the IRS continues to increase both the number and efficiency of the identity theft filters that are used to identify potentially fraudulent returns because of identity theft prior to the processing of the return and release of any refund.
The agency also supplies ID tax victims with an Identity Protection PIN (IP PIN)--a unique six digit number that is assigned annually to victims of identity theft for use when filing their federal tax return to identify themselves. For the upcoming tax year 2013 filing season, the IRS expects to provide more than 1.2 million taxpayers with an IP PIN, nearly double from the year before, he said.
“While the IRS has made considerable progress in this area, more work remains,” Sanford said. “Fighting identity theft is an ongoing battle as identity thieves continue to create new ways of stealing personal information and using it for their gain. Identity theft cases are among the most complex handled by the IRS.
Teresa McUsic’s column appears in the Fort Worth Star-Telegram. She can be reached at TMcUsic@SavvyConsumer.net
Ten Ways to Protect Yourself from Tax ID Theft:
1. File your tax return early in the tax season, if possible, before identity thieves file using your information to get your refund. The IRS will start processing tax returns on January 31 this year, but the agency’s Free File program, software and e-filing at no cost through tax software vendors, started yesterday.
2. Use a secure internet connection for filing electronically, or mail your tax return directly from the post office. Don’t use unsecure, publicly available Wi-Fi hotspots.
3. Shred copies of your tax return, drafts, or calculation sheets you no longer need.
4. Respond to all mail from the IRS immediately using the name and number printed on the notice or letter. You will need to fill out the IRS Identity Theft Affidavit, Form 14039.
5. Know that the IRS won’t contact you by email, text, or social media. Anyone who contacts you on behalf of the IRS in this way will be an ID thief. Report email phishing scams to the IRS at phishing@IRS.gov, and phishing phone calls, mail or faxes to the IRS Identity Protection Specialized Unit (IPSU) at 800-366-4484.
6. Contact the IRS IPSU if your purse or wallet has been stolen and it had your Social Security Number (SSN) or Medicare number in it or if you think your SSN has been stolen in some other manner.
7. Don’t carry or give out your Social Security number (SSN) or Medicare number to businesses unless necessary. Ask why it’s needed, how it’s going to be used and how it will be stored.
8. Get recommendations and research a tax preparer thoroughly before you hand over personal information.
9. Check your credit report at least once a year for free at annualcreditreport.com to make sure no other accounts have been opened in your name.
10. More information about tax identity theft is available from the FTC at ftc.gov/idtheft and the IRS at www.irs.gov/uac/Taxpayer-Guide-to-Identity-Theft.
Source: Federal Trade Commission and IRS
You can reach Teresa McUsic at TMcUsic@SavvyConsumer.net