The Koyal Training Group,Tis The Season For Tax Identity Theft

“Identity Thief” is a 2013 movie starring Jason Bateman and Melissa McCarthy about a woman who steals the identity of a man named “Sandy.”  After the McCarthy character steals the Bateman character’s identity, all types of high-jinx ensue.

In real life, identity fraud is a very serious matter that frequently ruins the credit of the victim and takes a great deal of time and effort to resolve.  With the 2013 tax filing season starting on January 31, 2014, the season for tax identity fraud is also upon us.

Stolen identity refund fraud (SIRF) is a subset of identity theft that involves the criminal stealing the tax “identity” of an individual.  Similar to any identity fraud, a criminal committing tax identity fraud obtains key information about the victim.  In the tax context, the key is obtaining the individual’s name matched with his or her social security number.  Once that is obtained, the SIRF thief submits a false tax return in the name of the victim claiming a tax refund.  Unfortunately, in many instances the refunds are issued.

The fraud may be discovered when the unsuspecting victim files his or her own return and discovers that the IRS will not issue a refund because a return has already been filed under their social security number.  It can be very difficult for the individual to get this straightened out with the IRS once the tax identity theft has been committed.  Like other identity theft, tax identity theft frequently causes the victim a number of problems including damaging credit ratings, and reducing state or federal benefits.

The victims of tax identity fraud are frequently the elderly, or individuals collecting subsistence payments who are not required to file federal income tax returns.  For the elderly and those who are not required to file tax returns, it may take much longer for such individuals to discover that they were victims of tax identity fraud.  Nevertheless, the fraud may impact those individuals by reducing state or federal benefits.

In September 2013, Treasury Inspector General for Tax Administration (TIGTA) issued a report on the IRS’s efforts to combat tax identity theft.  While TIGTA found that the IRS has taken a number of positive steps to combat SIRF and that the IRS’s expanded efforts in identifying tax identify theft cases have been working, TIGTA also noted that the IRS still issues billions of dollars in fraudulent refunds to tax identity thieves.

The IRS and Justice Department have clearly made combating tax identity fraud a high priority.  On September 27, 2013 Kathy Keneally, Assistant U.S. Attorney for Taxes stated that the Justice Department along with the IRS has made a commitment to crack down on stolen identity refund fraud, and to prosecute the perpetrators of tax identity fraud to the full extent of the law.[1]

There have been a number of tax identity theft prosecutions in 2013, and the convictions have been highly publicized.  The Justice Department hopes that the prosecution and imprisonment of tax identity thieves will create a significant deterrent to others contemplating tax identity theft.[2]

The IRS has also been active in fighting identity fraud.   The IRS has a section on its website www.irs.gov devoted to preventing identity fraud.  The IRS also has 3,000 fulltime employees working on identity fraud cases in 2013, nearly double the number that it employed in prior years.  In addition, the IRS has trained more than 35,000 of its employees to help taxpayers deal with identity fraud.

The Service has also instituted a special taxpayer identification number, the Identity Protection Personal Identification Number or IP PIN, that is assigned to an individual to show that they are the person entitled to file a federal tax return.

The IRS Criminal Investigation Division investigates reported identity thefts, and the IRS is working closely with the Justice Department to expedite the investigation and prosecution of identity fraud.

Individuals who suspect that they have been victimized by tax identity fraud can file an “IRS Identity Theft Affidavit”, Form 14039, to report the suspected identity theft.  The IRS will institute an investigation of the alleged identity fraud and will work with the taxpayer to resolve the matter and straighten out the individual’s federal income tax accounts.   The IRS website estimates that it may take up to 180 days to resolve a tax identity fraud case, but taxpayers experiencing the process tell of delays exceeding a year.  The IRS is working to reduce that time.

FRAUD AND COMPLIANCE

A criminal who obtains an individual’s name and social security number may attempt to commit other financial crimes in addition to tax refund fraud so the problem may go beyond the issue with the IRS.  For example. the criminal may attempt to use the information to obtain credit cards or loans using the victim’s identity.  This additional identity fraud can destroy a victim’s credit preventing the victim from obtain mortgages or any type of consumer credit.

FAIR CLAIMS TRAINING

The following are some helpful hints to help minimize the risk of being victimized by identity fraud (some of which were taken from the IRS website): (1) shred any documents with your social security number or other sensitive information, including copies of bills, older bank statements, and older tax return information such as copies of old tax returns and Forms W-2, (2) avoid giving out personal identification information over the phone and via the internet when possible; only give out such information when it is absolutely necessary, and only on secure websites, (3) don’t carry social security cards on your person, for example in a wallet or purse, as those items might be stolen, (4) secure social security cards, tax records, and other personal information in locked file cabinets within your home.