What is Tax Identity Theft?

0
Tax Identity Theft

Source: web

According to the Federal Trade Commission, there’s been an “explosion” of tax identity theft. In fact, it’s beginning to outpace other types of identity theft. Here’s what it is and how you can protect yourself.

The new FTC report reveals that tax fraud and identity theft related to tax fraud has “eclipsed” every other type of consumer complaint. The numbers tell the tale. A combination of all complaints to the FTC regarding cell phone company complaints, counterfeit checks, debt collection complaints and other scams rose less than 5 percent. By contrast, tax related identity theft doubled. It’s an alarming statistic, no doubt.

Consumer Sentinel Network

The FTC report comes from the Consumer Sentinel Network, which was begun in 1997 to collect fraud and identity theft complaints. Since then, CSN has received more than 8 million complaints, including those about credit reports, debt collection, mortgages, and lending, among other subjects. It maintains these complaints for five years and between January and December 2012, the CSN received more than 2 million consumer complaints, which the FTC has sorted into 30 complaint categories.

Criminals use stolen social security numbers as well as doctored W-2s and 1099s to get massive tax refunds from the IRS. Often, the real recipients never receive their refunds and then must spent a considerable amount of time rectifying the problem as the criminals are long gone.

Further complicating matters is the IRS, due to privacy laws, cannot share the complaints they receive to other government agencies. This means the massive growth in these crimes don’t even include those made to the IRS, only those made to the FTC, Better Business Bureau, the Postal Service and other agencies. It’s believed, though, that the IRS received close to a million complaints in 2012, which easily eclipses the 240,000 it received in 2011.

Knowing Compromise

So how do consumers know if their information has been compromised? The IRS says ID thefts use true social security numbers and often the real taxpayer isn’t made aware of the theft until one of two things happen – the thief beats the taxpayer to the punch and files first, thereby receiving the refund before the taxpayer files or in the instances where the refund hasn’t been issued, the IRS notices two filings were made using the same tax ID number. The taxpayer isn’t made aware of the problem until he or she receives notice from the IRS that states that more than one return was filed, a refund offset was made, a balance is due when the taxpayer believes it should be a refund, that their records show the taxpayer was paid from another employer or that collection actions have been filed against the taxpayer for a year he didn’t file a return.

If a taxpayer does receive a notice, he should contact the agency immediately. Often, the identity theft has compromised far more than just his social security and tax information. Many times, credit card accounts are opened, cars are purchased or any other financial action. Once the taxpayer has contacted the IRS, they are then sent an IRS Identity Theft Affidavit Form, Form 14039.

For those who are concerned, especially if their purses or wallets have been stolen, or if they notice their credit card statements have purchases they didn’t make, they too should contact the IRS ID Protection Specialized Unit. Even if it becomes a simple proactive choice and their identity isn’t compromised, it’s an ideal way to ensure the problem is kept to a minimum.

Leave it at Home

The IRS also encourages Americans to not carry their social security cards with them, not give their numbers to a business for no obvious reason or run their computers without a firewall and up to date anti-virus program. Further, efforts to protect financial information should be priority and consumers/taxpayers should check their credit reports every year.

David Torok, director of the FTC division which oversees the network, notes that there were two more areas where consumer complaints grew last year. Imposter scams are those where consumers are phoned or emailed from those stating they were with the IRS or other government agencies.

There are even instances where the person making contact claimed to be from companies like Wal Mart or Target. There were 83,000 imposter call complaints recorded in 2012. The goal, of course, is to get consumers to give up their social security numbers or credit card numbers. The other scam, Torok explains, was associated with banks, credit card companies and other lenders. These rose 33% last year to 132,000. In these cases, imposters contact consumers with claims they’re representatives with the entities. Because they know which bank the consumer uses, often, that consumer falls prey. Many of those complaints are being forwarded to the Consumer Financial Protection Bureau.

Epidemic

There’s no doubt this is becoming an epidemic that so far has shown no signs of slowing down. Billions have been stolen in fraudulent refunds alone. Many are wondering how it’s gotten so out of hand.

Also, news broke today that if the Sequester takes place tomorrow, that the IRS could have a new worry on its hands: not enough workers to process tax returns. If that happens, it means millions who pay extra for rapid refunds will be wasting their money as they three or four day turnaround could grow to weeks. For those who file traditionally, their “few weeks” turnaround could become months of waiting.

Clearly, these problems – all of them – are worsening with time. As one analyst said,

Those whose identities are hijacked must often spend months dancing with the IRS and waiting for their refunds.

And now – it could be the government itself that’s making things far more desperate for taxpayers who rely on a timely turnaround of their refunds every year.

In the meantime, though, if you have been a victim of any type of identity theft or fraud, you should file a complaint with any agency that’s applicable, including the IRS, the FTC or the CFPB. Also, consider filing a complaint with the Better Business Bureau as well.

Share.

About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.


Few Credit Card offers from our Partners

Features a low APR, no annual fees**, no hidden fees** and the ability ...


More Info

Easily track and manage your money; No annual fee; Automated Fraud Aler...


More Info

Advertiser Disclosure

CREDIT DAD is an independent, advertising-supported website. Many debit cards, credit cards and other financial offers that appear here are from companies from which CREDIT DAD Websites receive compensation. This compensation may impact how and where products appear on this website (including, for example, the order in which they appear). CREDIT DAD Websites do not include all card offers in the marketplace.

Advertiser Disclosure

CREDIT DAD is an independent, advertising-supported website. Many debit cards, credit cards and other financial offers that appear here are from companies from which CREDIT DAD Websites receive compensation. This compensation may impact how and where products appear on this website (including, for example, the order in which they appear). CREDIT DAD Websites do not include all card offers in the marketplace.