Taxpayer identity theft is soaring

By LARRY MARGASAK, Associated Press Larry Margasak, Associated Press

WASHINGTON – Imagine filing your tax return and learning that someone else got your refund. With your name and Social Security number, no less.

The IRS is grappling with a nearly five-fold increase in taxpayer identity theft between 2008 and 2010, a Government Accountability Office official plans to tell a House hearing Thursday. There were 248,357 incidents in 2010, compared to 51,702 in 2008.

The GAO findings, obtained by The Associated Press, don't begin to describe the pain for a first-time victim, who must wait for a refund while the IRS sorts out which return is real and which is a fraud.

Many identity thieves don't get prosecuted, according James White, director of strategic issues for the GAO..

"IRS officials told us that IRS pursues criminal investigations of suspected identity thieves in only a small number of cases," White says in testimony prepared for a House Oversight and Government Reform subcommittee.

He said that in the 2010 fiscal year, the IRS criminal investigations division initiated just over 4,700 investigations of all types — far less than the identity theft cases alone.

"We want to know why this problem is apparently getting much worse," said Rep. Todd Platts, R-Pa., chairman of the subcommittee. "By bringing these issues to the public as quickly as possible, the committee hopes to give citizens the necessary information so they can protect themselves from such identity theft."

IRS Commissioner Douglas Shulman, in his prepared statement, defended the criminal investigation record. He said his criminal division concentrates on schemes of national scope and added that 95 percent of those prosecuted for refund-related identity theft go to prison.

Tax identity thieves typically submit returns for refunds early in the filing season. The legitimate taxpayer usually files later, and only then learns from the IRS that two returns were filed using the same Social Security number.

Some thieves steal a name and Social Security number to obtain a job. The employer will report the thief's wage information to the IRS, as would the legitimate taxpayer's employer. The victim then would receive an unwelcome IRS notice that he or she failed to report everything that was earned. The victim would then need to work with the tax agency to sort things out.

Shulman said the IRS can significantly increase its protection after someone has been victimized the first time.

Tax form 14039, the IRS Identity Theft Affidavit, allows the agency to mark an account to identify future questionable activity. A task force of the IRS and other agencies established a website, STOPFRAUD.gov, which tells taxpayers what to do if they suspect identity fraud.

The main IRS website includes "Ten Things the IRS Wants You to Know About Identity Theft."

If the IRS receives multiple tax returns for the same individuals, the taxpayer usually must substantiate identity with a federal or state-issued identification such as a driver's license or passport — together with a copy of a police report or the IRS affidavit.

This past January, the IRS developed a pilot program designed to lessen delays for victims who deserve a refund.

Victims are issued an "identity protection personal identification number," which the IRS will use to process future returns. A new PIN will be issued each year the taxpayer's account has been marked for potential fraud.