Identity Theft in the Tax Realm is on the Rise

In recent testimony before the Senate Finance Committee’s Subcommittee on Fiscal Responsibility and Economic Growth, Nina Olson, the National Taxpayer Advocate, issued a solemn warning to taxpayers:  IRS is seeing unprecedented levels of identity theft leading to tax fraud.

In general, identity theft occurs in tax administration, said Olson, when an individual intentionally uses the Social Security Number of another (mainly in connection with a fake filing to obtain a refund) or to gain employment under false pretenses.

The IRS has created the Identity Protection Specialized Unit (IPSU) to help identity theft victims, but can barely keep up.  In fiscal year 2009, identity theft cases totaled just over 80,000; in fiscal 2010 the number was over 188,000, and in roughly just the first seven months of fiscal 2011, the count is nearly 127,000 cases!

Searching for an explanation for all of this, Advocate Olson offers several likely explanations for the dramatic increases:

  1. The increase of such cases in the IRS could simply reflect an overall increase in tax-related identity theft as opposed to other kinds of identity theft.
  2. There is increased public awareness of identity theft.  Folks may be checking their credit reports more frequently and may be more adept in detecting identify theft.
  3. Identity thieves have become more proficient.  One of the more sinister schemes involves the misuse of a deceased taxpayer’s Social Security Number to obtain fraudulent refunds.
  4. Personal information has become readily accessible.  Apparently, the Social Security Administration is required to make available certain information about deceased individuals, including their name and Social Security Number.  The Advocate notes that Internet searches can lead to a number of sites which provide this information, often free of charge.

Bottom line – taxpayers beware!

(For tips on how to protect yourself, see Nolo’s article Identity Theft During Tax Time: Protecting Yourself.)