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Fight back against tax return identity theft

Published: Monday, June 4 2012 1:59 p.m. MDT

Fight back against tax return identity theft. (Internal Revenue Service) Fight back against tax return identity theft. (Internal Revenue Service)

SALT LAKE CITY -- While tax time has come and gone for most Americans, hundreds of thousands have reportedly been victimized by the No. 1 crime in United States: identity theft.

Or in the case of the illegally filed income tax return – tax return identity theft.

So lucrative is the crime of tax return identity theft, many drug dealers, armed robbers and gang members, who once relied upon guns to commit crimes, are now putting them away in favor of laptops and blind mail drops.

Tax return identity theft has become so popular that former NFL players William Joseph, Michael Bennett and Louis Gachelin were arrested by the FBI earlier this month and charged with an identity theft and tax fraud scheme. The three former football players are alleged to have filed false tax returns in other people's names and then allegedly stole their refunds.

So lucrative was the crime of tax return identity theft, that Jobson Cenor, a U.S. Marine stationed in Afghanistan, allegedly sold the names, dates of birth, and Social Security numbers of fellow Marines serving our country to a co-conspirator, who used the stolen identities to file tax returns seeking fraudulent refunds.

In this case, Cenor had the names and Social Security numbers of 44 U.S. Marines in his quarters at Camp Leatherneck, Afghanistan, when searched by the Naval Criminal Investigative Service in February. Twenty-one of those names allegedly had illegal tax returns filed against them this year.

The Internal Revenue Service reports that more than 850,000 tax returns were associated with fraudulent refunds and identity theft in 2011. Most victims are unaware they have been victimized until they file their returns. Only at that time do they learn that someone else has already claimed a refund in their name.

This should be of particular concern for Utahns as identity theft complaints have, according to the Federal Trade Commission, more than doubled in the Beehive state since 2010.

At a news conference last month, Rep. Debbie Wasserman Schultz (D-Fla.) and House Judiciary Committee Chairman Lamar Smith (R-Texas) introduced legislation to help combat the growing problem of tax return identity theft.

“Stopping Tax Offenders and Prosecuting Identity Theft Act” - or STOP IT, (H.R. 4362) acts to protect an individual taxpayer as well as groups who have been victimized by tax return identity theft.

If passed, the legislation would require the U.S. Department of Justice to focus on communities that have been hardest hit by the exploding identity theft crisis.

"The federal government must become more vigilant in stopping tax-related identity theft," stated Wasserman Schultz, at a press conference held at the Broward Sheriff’s Office in Fort Lauderdale.

Wasserman Schultz said that the bill will require tougher sentences — a minimum two-year prison sentence for each tax return related identity theft conviction instead of the current up-to-two-year term.

“Millions of Americans who file their taxes expect that they will receive a federal refund," added Lamar Smith in a prepared released. “Unfortunately, rather than collecting their hard-earned cash, many will discover that they have become victims of tax refund identity theft.”

"That would help deter fraud," added Wasserman Schultz.

It is a low-risk crime" that cost taxpayers almost $5.8 billion in fraudulent tax refunds last year.

Local, state and federal law enforcement officials agree that tax return identity theft is running rampant nationwide.

“Two hundred sixty-two thousand fraudulent tax returns and $1.4 billion in losses were prevented nationwide by the Internal Revenue Service last year,” Mike Dobinski, an IRS spokesman, told KSL. “So far, 215,000 fraudulent returns accounting for over $1.15 billion in refunds have been prevented this year.”

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.

Victimized consumers should also consult the Taxpayer Guide to Identity Theft or the IRS Identity Theft Protection page to learn more about tax return identity theft.

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.

Contact Equifax at (800) 525-6285, Experian at (888) 397-3742 and TransUnion at (800) 916-8800.

"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.

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