By Stephen Barr
Monday, April 14, 2008
The scam goes like this:
A bogus tax return using a stolen Social Security number is submitted to the Internal Revenue Service early in the tax-filing season. Because the IRS does not know the return involved identity theft, it sends a refund.
When the real tax return is filed, it gets flagged as a duplicate, freezing any refund. It sometimes takes months for the innocent, legitimate taxpayer to sort it all out with the IRS.
Filings of fictitious tax returns to steal refunds have jumped dramatically, perhaps because con artists can file them electronically and get a direct-deposit refund long before the real taxpayer finds out.
From 2002 to 2007, the number of fraudulent tax return complaints to the Federal Trade Commission jumped to 20,782, from 3,061, according to a report by the Treasury Inspector General for Tax Administration, or TIGTA.
The rise in fraudulent tax returns was an issue at a Senate Finance Committee hearing last week called by the committee chairman, Sen. Max Baucus (D-Mont.). "I am disappointed that the IRS does not notify a taxpayer when someone else has filed a return using the victim's Social Security number," he said.
Nina E. Olson, the national taxpayer advocate, who provides an independent voice on behalf of taxpayers, told the committee she is concerned the IRS does not know how many taxpayers are affected by identity theft and said the problem may be more widespread than IRS data suggest.
Another witness, J. Russell George, the inspector general for tax administration, said the IRS "processes and procedures have been inadequate in reducing the burden for taxpayers who have been victimized. When the IRS becomes aware of employment-related identity theft, it does not take action unless the case relates to a substantive tax or conspiracy violation."
Unless the IRS acts to address identity theft and related computer security issues, George said, "there is no deterrent to keep the problem from spreading."
Olson, in additional testimony submitted to the committee, said her staff is receiving calls from senior citizens who filed for this year's tax rebate after not filing returns for several years and who have discovered that someone else has been using their Social Security numbers on tax returns.
She and George also described another common scam involving tax returns.
These cases often involve illegal immigrants and undocumented workers who use another person's identity -- name, Social Security number or both -- to obtain employment. The employer files a wage and tax statement, the W-2, under the stolen identification information, and the IRS computers attribute the earnings according to the Social Security number. Then the IRS levies an additional tax on the lawful owner of the Social Security number, creating consequences for the innocent person.
Such employment-related problems are on the rise. From 2002 to 2007, this type of identity theft complaint more than doubled, from 15,089 to 35,343, according to the TIGTA report.
In testimony submitted separately to the committee, George said "phishing" is a serious problem for the IRS. In those schemes, an unsolicited e-mail directs people to a bogus Web site that requests personal information, such as credit card and bank account numbers.
TIGTA has found "get your refund" phishing sites and anticipates that this year's economic stimulus payments will lead to "get your rebate" sites.
As of March 31, TIGTA had identified seven phishing sites set up to con taxpayers into believing they are filing their income taxes electronically with the IRS. Last year, TIGTA found 39 IRS-related phishing sites.
At last week's hearing, Sen. Ken Salazar (D-Colo.) urged IRS Commissioner Douglas Shulman to consider creating an identity theft crisis center to help taxpayers. Shulman, who took office March 24, said the agency is working to improve assistance to victims of identity theft.
The IRS plans to have employees in place by this fall to assist taxpayers when they call to report identity theft, Shulman said. And, he said, the IRS has established an office to focus on an agency approach to identity theft and data security issues.
The IRS also is creating a tag for taxpayer accounts to show they have been victimized. Once the tag is attached, taxpayers should have to provide documentation only one time to prove their personal information has been stolen.
"We understand the personal devastation that an individual feels when their identity has been stolen," Shulman said. "We also understand that when a victim of identity theft seeks assistance from a government agency, they have a right that that agency will help them, not add to their problems."
Stephen Barr's e-mail address is barrs@washpost.com.
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