The ID thefts include thieves filing tax returns on behalf of taxpayers, or holding jobs using stolen Social Security numbers and leaving victims on the hook for taxes.
“It’s an every-year thing for me,” said Arcadio Alvarez.
Alvarez, 27, lost his wallet nine years ago. Someone else has been working jobs in Cincinnati and California under his name, using his Social Security number. As a result, the IRS has accused him of not paying about $3,000 in taxes every year since the theft.
“Every year before you’re asked to file your taxes, I get a letter from the IRS,” Alavarez said.
“It says I had another job that wasn’t claimed on the previous year’s return,” he said. “It’s a whole waiting thing to see if it happens the next year.”
So far he has been able to convince the IRS the other person wasn’t him; but he lives in fear of the year they don’t believe him.
The federal government has stepped up prosecutions, but investigations still number only in the thousands. Victims, meanwhile, are subjected to a months-long headache of proving they’re the real taxpayer.
“Part of being the victim is you have to prove that it wasn’t you,” said Fred Francis, former IRS revenue officer who is now a tax-preparer with Clark, Schaefer Hackett.
E-filing feeds fraud
Area tax advisers say the rise of identity theft corresponds with the growing prevalence of electronic filing. Francis said it happens “enough to call it scary.”
He said when he was with the IRS, he saw cases where family members would steal information from each other and file for refunds, sometimes claiming massive amounts they weren’t due.
He said electronic filing makes it easier for this to happen because it doesn’t require a W-2 to be submitted with the filing and allows returns to be deposited into any account.
“It’s a big problem,” Francis said. “Until technology catches up with itself, you’re going to have this issue, and even when it does catch up, they’ll just find a way around it.”
“It is definitely on the rise, and it happens frequently, where taxpayers go to file their tax return and somebody has already filed a return under that number,” said Jeff Woeste, tax manager at Flagel, Huber, Flagel.
Sometimes he said this happens from another taxpayer filing online and accidently hitting the wrong number on his or her SSN.
Woeste said the response from taxpayers when they’re told they’ve already filed is “shock.”
“(It means) loss of funds, delayed use of funds and more cost to them for professional advice,” he said.
Local preparers say the best thing you can do to protect yourself is file early, before someone else gets a chance.
Cases total nearly a million
Treasury Inspector General for Tax Administration J. Russell George, an IRS watchdog, expressed to Congress last week concern not only about the number of suspected fraudulent returns, but also the time it takes to resolve issues with innocent taxpayers.
Of the 2.1 million fraudulent returns the IRS identified in 2011, George said 938,664 with $6.5 billion in associated fraudulent refunds involved identity theft.
A Government Accountability Office report on taxes and identity theft released in May found the number of tax-related identity theft incidents identified by the IRS increased five-fold from 51,702 in 2008 to 248,357 in 2010.
The median amount of these refunds in 2009 was $3,400, the GAO reported.
The IRS wouldn’t directly release numbers on suspected fraud, only cases that have been caught. In 2011 nearly 262,000 tax returns were removed from the system, blocking payment of roughly $1.4 billion. This is an increase from nearly 49,000 returns in 2010, worth $247 million.
Thieves employ ‘sinister schemes’
For an identity theft scheme to work, thieves need personal information such as name, Social Security number and birthday.
They obtain this in myriad ways, according to Craig Casserly, spokesman with the IRS criminal investigative unit in Columbus.
Sometimes the information is taken by someone who knows the victim, he said. Often, it’s obtained through an Internet phishing scheme from someone pretending to be the IRS.
“The IRS will not email you,” he said.
Nina Olson, National Taxpayer Advocate, noted in U.S. Senate testimony last year that “criminals have become more proficient in devising schemes to steal identities.”
One of the more “sinister schemes” she identified was the use of deceased taxpayers’ identities — SSNs, date of birth and other information is publicly accessible upon a person’s death, often for free from some websites — in filing for a return. Sometimes thieves steal the identities of deceased children to claim them as dependents, she said.
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