When Fort Worth accountant Cyndy Kimberling tried to electronically file a tax return for two of her clients last year, a message popped up from the IRS saying the returns were rejected because they had already been filed.
But they hadn't.
"The message said, 'Your Social Security number had already been used,'" Kimberling said. "I had never seen that before last year, but we're going to see this all over the place now."
Kimberling said she is already seeing evidence of more ID fraud activity this tax filing season, which started two weeks ago.
Taxpayers facing this problem have to redo their taxes on paper and mail the return to the IRS, she said. They must also include a special IRS form explaining the reason.
But expect a delay on your refund. One of Kimberling's clients last year waited two months, compared with a typical two-week turnaround for refunds through electronic filing, she said.
Some filers wait even longer, said Neil O'Farrell, executive director of the Identity Theft Council in Walnut Creek, Calif. Most of the tax fraud victims he has worked with have waited six months to a year for the IRS to work through and award the proper refund, he said.
Tax fraud involving identity theft has become big business in the U.S.
Last year, the IRS said it stopped more than 260,000 fraudulent returns with confirmed cases of identity theft. The thieves were after $1.4 billion in refunds. In 2010, almost 49,000 fraudulent returns sought $247 million, according to the IRS.
"Low-level or street-level thieves to organized crime have suddenly realized the IRS is a big vault of money with relatively no security and with common vulnerabilities," O'Farrell said.
But Uncle Sam is fighting back.
This week, the IRS and the Justice Department instituted a national crackdown, including Dallas, Kemp and San Antonio: 105 people, 23 locations, 80 complaints and indictments, 58 arrests, 19 search warrants, 10 guilty pleas and four sentences.
"Some of the activity has been civil -- compliance visits geared toward raising awareness -- while other activity has been enforcement," said Clay Sanford, IRS spokesman in Dallas. No public records are available on the action in Texas, he said, and there have been no arrests here.
But elsewhere, lawsuits have been filed and arrests made. For example, two Detroit tax preparers were indicted on charges of taking the identity of recently deceased people to file 352 returns for $800,000. A Florida couple were charged this week with participating in a check-cashing scheme involving more than $5 million in fraudulently obtained refund checks and refund anticipation loan checks.
Social Security numbers have been taken from a variety of sources by the thieves, including schools, hospitals, government agencies and banks.
O'Farrell said tax ID fraud went viral last year after crime rings in Tampa, Fla., began teaching classes of 50 to 100 people at a time how to cheat the system. Authorities arrested 49 people in September suspected of filing nearly 10,000 fraudulent refunds valued at more than $130 million using online software.
"The thieves got together and realized it was much safer filing bogus IRS tax returns than selling drugs," O'Farrell said.
The IRS said that to further combat the problem, it has designed screening filters that it says will improve its ability to spot false returns before they are processed or a refund is issued. The agency also is placing identity theft indicators on taxpayer accounts to track and manage identity theft. A pilot program that marks the accounts of deceased taxpayers is expanding, the IRS said.
Also, the IRS said this week that it has expanded an initiative to protect victims with previously confirmed cases of identity theft. Now, taxpayers who have been victims of tax ID fraud will receive an identity protection personal identification number that will be put in a box on their return for filing in the future.
O'Farrell said the best defense is filing before the thieves. "Thieves of all kinds know there are weaknesses in the system, and all they need is a Social Security number," he said. "There were 400 significant data breaches in 2011, and 80 percent of them had Social Security numbers exposed."
Teresa McUsic's column appears Saturdays.