In 2010, the Internal Revenue Service reported fewer than 50,000 falsified returns and $247 million in fraudulent refunds.
Nearly 24 percent of Americans filing complaints to the Federal Trade Commission last year about identity theft indicated they had fallen victim to wage or tax fraud. That number has more than doubled since 2008 when only 12.3 percent of identity theft complaints were related to wage or tax fraud.
In 2011, the FTC received almost 280,000 complaints concerning identity theft, an increase of more than 10 percent from the previous year.
Falsified returns are especially easy for thieves to manipulate as the Internal Revenue Service does not authenticate tax returns or W-2 forms prior to issuing a refund. All an identity thief needs is a name and Social Security number, a new address, and a bank account or debit card number.
In some cases, identity thieves make up names and Social Security numbers fully aware that the IRS does not compare personal identifiers such as a name and Social Security number.
As a result of online filing and tax preparation services offering rapid refunds, thieves are able to have fraudulent refunds deposited to a anonymous debit card in less than two weeks.
“Privacy is up for grabs these days from every direction,” Florida State Representative Denise Grimsley (R-Sebring), Chairman of the House Appropriations Committee, told KSL. “Frauds are bilking citizens and the system of millions because so much of our personal information is exposed.”
Tax return identity theft has reached such epidemic proportions that it tops the list of the IRS’s Dirty Dozen Tax Scams for 2012.
The IRS acknowledged that it does not routinely match taxpayer names with Social Security numbers: "It all starts with a Social Security number," Dobinski stated.
Victims of tax return identity theft or taxpayers who believe they are at risk as a result of lost or stolen personal information should contact the IRS Identity Protection Specialized Unit at 800-908-4490.
Taxpayers will be required to complete an IRS Identity Theft Affidavit - Form 14039 - to initiate the investigation process.
Although not directly relevant to tax return identity theft – as most scammers are only applying for a tax refund – victims should also contact the credit reporting agencies and request a 90-day initial fraud alert on their credit report. Not only will this trigger a free credit report but will advise potential creditors to investigate any application prior to issuing credit, goods, benefits, services, and/or employment.
"Identity theft can be frustrating for victims,” Dobinski concluded. "There are a number of things the IRS is doing to detect and deter fraud. We've increased the use of screening and filtering."
Bill Lewis is the principal of William E. Lewis Jr. & Associates and host of the Credit Report with Bill Lewis — a daily forum for business and financial news, politics, economic trends and issues on AM 740 WSBR in south Florida.