A Fast-Growing and Alarming Problem: Taxpayer Identity Theft

As if all the time, expenses, and energy spent digging through the 209 pages of Form 1040 instructions, hunting around for receipts, and double checking all the numbers to make sure you’ve filled out your taxes properly wasn’t onerous enough, many taxpayers may be in for an additional unexpected surprise when they try to submit their taxes. The IRS may let you know that your Social Security number was already used to file taxes this year. Uh oh. You’re now a victim of identity theft. And the number of reported cases is skyrocketing at an alarming rate.

In 2008, the IRS detected 47 thousand cases of taxpayer-related identity theft. Taxpayers also report additional incidents themselves. The latest IRS figures show that there were nearly 3 million incidents of identity theft impacting 2.4 million taxpayers in 2013.

Thieves are stealing Social Security numbers and filing fraudulent tax returns. Unfortunately, the victims often don’t become aware that there is a problem until they learn from the IRS that someone has already filed under their name.

What do you do if you are a victim? The IRS has a guide here with the following information:

  • File a report with law enforcement.
  • File a complaint with the Federal Trade Commission at www.identitytheft.gov or the FTC Identity Theft Hotline at 1-877-438-4338 or TTY 1-866-653-4261.
  • Contact one of the three major credit bureaus to place a ‘fraud alert’ on your credit records:
    • Equifax, www.Equifax.com, 1-800-525-6285
    • Experian, www.Experian.com, 1-888-397-3742
    • TransUnion, www.TransUnion.com, 1-800-680-7289
  • Contact your financial institutions, and close any accounts opened without your permission or tampered with.
  • Check your Social Security Administration earnings statement annually. You can create an account online at www.ssa.gov.

In addition, there is an IRS affidavit form to fill out and you must, of course, still pay your taxes, although you will not be able to file electronically.

What next? Well, expect to wait. The IRS has expanded its Identity Protection Specialized Unit but the agency is nevertheless overwhelmed with fraudulent returns. The Treasury Department Inspector General reports that the average resolution time in 2013 for taxpayer identity theft cases was 278 days – nearly nine months, which is actually an improvement from 2012’s 312-day waiting period.