IRS targets rise in tax identity theft

01/17/2014 3:57 PM

01/17/2014 4:12 PM

This is Tax Identity Theft Awareness Week — and all tax filers should know a number of things about this problem.

First, it’s growing rapidly. In 2010, tax identity theft — or filing federal taxes in someone else’s name to claim the refund — accounted for just 15 percent of the identity theft complaints from consumers to the Federal Trade Commission.

By 2012, that category grew to more than 43 percent — 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 show a huge increase in the problem. In 2010, just 49,000 returns involving $247 million in tax refunds were stopped.

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, said in her annual report to Congress. “The IRS seems to be throwing bodies at the problem without addressing fundamental problems with its processes.”

Sanford said a typical tax identity theft takes six months to resolve. But in September, the Treasury Inspector General for Tax Administration reported that the average cycle time for a 100-case sample of identity theft cases was more than 10 months. The report said the cases were stuck inactive in various IRS units for most of that time and 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,” Olson said in her report.

One reason tax ID theft is growing is that thieves are getting our Social Security numbers like never before. The Identity Theft Research Center Breach Report showed that in 2013, almost half the 619 reported breaches included the exposure of Social Security numbers, up 28 percent from the year before. The 619 data breaches involved more than 57 million records.

Another reason is that the IRS has been pushing electronic tax filing because of a mandate from Congress, said Matt Davis, a spokesman for the research center.

“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 identity theft filters used to find potentially fraudulent returns.

The agency also supplies victims with an Identity Protection PIN — a six-digit number that is assigned annually to victims of identity theft for use when they file their federal tax returns.

For the upcoming filing season, the IRS expects to provide more than 1.2 million taxpayers with a number, nearly double from the year before.

“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.”

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