Identity theft and federal income taxes

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February 10, 2016
Identity theft is one of the fastest growing crimes in America. It is a persistent and evolving threat and the harm to its victims cannot be overstated. Identity thieves commit this crime by stealing personally identifiable information, from limitless sources, then use the stolen information to perpetuate a number of fraudulent schemes. Tax refund fraud (IDT refund fraud) is one such crime. This is when a fraudulent tax return is filed in the name of the victim with the intent of collecting a refund.

In a January 2015 study by the Government Accountability Office (GAO), the IRS estimated it had paid $5.8 billion in IDT fraud refunds during 2013. However, the GAO also estimated $24.2 billion in IDT refunds were either prevented or recovered. Based on these figures, approximately 19% of fraudulent returns filed were successful. A report from the U.S. Treasury Inspector General for Tax Administration stated there were 2.9 million incidents of tax-related identity theft in 2013, up from nearly 1.8 million in 2012.

The IRS continues to increase its efforts against refund fraud. Among the steps underway is the IRS Identity Protection PIN (IP PIN) program. The IP PIN is a unique six digit number, assigned annually to victims of identity theft for use when filing their federal tax return that, shows a particular taxpayer is the rightful filer of the return. The IRS began issuing IP PINS to eligible taxpayers in 2011, and for processing year 2014, the IRS issued over 1.2 million IP PIN notices to taxpayers. After receiving an IP PIN, the taxpayer must use it to confirm their identity on their current and any delinquent returns during the calendar year. The IRS sends a new IP PIN each December.

The IRS is also working to increase the number of IP PINs and recently announced that, starting in 2015, taxpayers who filed their 2014 tax return with an address in Florida, Georgia, or Washington D.C. are eligible to obtain an IP PIN. These states were chosen for the pilot program because they have experienced the highest per capita percentage of tax-related identity theft.

In addition to the pilot program, the IRS is offering certain taxpayers the opportunity to opt into the IP PIN program. These are taxpayers who may be unaware they are identity theft victims, but the IRS has identified them because their accounts have indications of identity theft. These taxpayers will be notified through mail by the IRS.

What should you do now? We are all aware of threats to our personal information, we have passwords for everything now. With IDT refund fraud, the most critical piece of information is your Social Security number. The IRS recommends you do not carry your Social Security card with you and do not give your number to businesses unless absolutely required. Also, check your credit report every 12 months and protect your personal computer with fire walls, anti-virus software, and updated security patches. Be alert to IRS notices – the IRS does not send e-mail notifications or make phone calls. If you receive a suspect letter, e-mail, or phone call, contact the U.S. Treasury Inspector General for Tax Administration at 1-800-366-4484 or online at “IRS Impersonation Scam Reporting.” If you suspect your identity has been used fraudulently, contact the IRS Identity Protection Specialized Unit at 800-908-4490 as soon as possible.
Jennifer Van Cleave, Senior Marketing Specialist
(210) 253-1595