It was recently reported that billions of dollars are being stolen every year by identity thieves filing fraudulent tax returns. Indeed, 43 states that collect taxes are reporting that their offices are being flooded with bogus tax returns, which shows that the IRS certainly isn’t the only target of these thieves.
A recent report from the Treasury Inspector General for Tax administration estimated that identity theft, and the fraudulent tax returns that were a result of it, cost the federal government nearly $4 billion in 2011. While that’s down approximately $1.6 billion from 2010 (due to better detection methods) their new report says that not only is the problem eroding taxpayer’s confidence in the federal tax system, it’s also causing devastating consequences for many of them.
The biggest problem at the state level is that most states simply don’t have the resources to handle a problem of this magnitude. Even though many have put procedures in place to spot, and stop, the most obvious fraud warning signs, many of the fraudulent returns simply fall through the cracks.
“This is a fixable problem, but you need the technology to fix it and most states are not technologically equipped to deal with this,” said Howard Safir, former commissioner of the New York Police Department.
The problem; it’s not brain surgery
Unfortunately it doesn’t take a criminal mastermind in order to commit tax fraud. With just some basic information like a Social Security number and a W-2 form, even the dumbest criminal can file a false tax return.
“Tax fraud is easy,” said “Ray”, a convicted identity thief serving a long prison sentence in California. “You can just go through mailboxes and there’s a lot of W-2’s out there.”
Ray was interviewed for “In the Company Thieves’”, a video series about identity fraud produced by the Identity Theft Council, a nonprofit organization. He said that, during his time as a criminal, he once used a stolen identity to file a false return and get a $15,000 refund. He also deducted five children one year on his taxes and was amused by the fact that the IRS didn’t realize that, the year before, he hadn’t deducted any. (Ray refused to give his last name during the interview.)
Security expert Neil O’Farrell, who interviewed Ray for the video series, says that “ID tax fraud has been the most attractive type of identity theft for years now, which is why the dumbest of the dumb criminals got in on this.” He added that “You can’t criticize thieves for taking advantage of stupid, and it was breathtakingly stupid that the IRS and the states didn’t invest in simple measures that would eliminate 90 percent of this fraud.”
How to Protect yourself
Frankly, practically all consumers are vulnerable to identity theft but there are a number of things that anyone can do to reduce their risk of becoming a victim. One of the first is simply to mail your return from the post office rather than an unlocked mailbox in front of your house or apartment. Also, when filing electronically, make sure to use a secure computer that’s also on a secure network.
If possible, ask your employer to email your W-2 form to you rather than send it in the mail. Something as simple as this can prevent your identity from being stolen and your life from being sent into turmoil.
One way to spot that your identity actually has been stolen is it you get a letter from the IRS saying that you filed more than one tax return or that a W-2 you received was from an employer you aren’t familiar with. If this happens, you must respond immediately to get the problem taken care of before it mushrooms.
The IRS has a special unit dedicated to identity theft and tax fraud. Their toll-free number is 800-908-4490.