IRS Overwhelmed with Identity Theft

Now that the New Year is here, it's time to start thinking about W-2's and 1099's to get ready for tax season.  Though many people don't start thinking about their taxes until closer to April, the IRS actually begins processing tax returns in January; for 2012, processing begins on January 17th.  Since many people wait until the last minute to file, however, identity thieves have a three-month window of opportunity to swoop in and try to commit tax fraud by stealing the refunds from honest taxpayers. (See several updates below)

Take the case of Stacy and David Lyles: An identity thief filed a false tax return using Stacy's identity, spent over $6000 at Best Buy on electronics and rented a U-Haul in Stacy's name which was later abandoned.  U-Haul threatened to have Stacy arrested when the vehicle went missing, and notices for credit cards and other credit accounts started appearing in the Lyles' mailbox.

I've mentioned before how big of a problem tax fraud through identity theft has become, and there are no signs that these theft attempts are slowing down.  According to the National Taxpayer Advocate Nina E. Olson, there were over 226,000 attempts at tax fraud through identity theft last year alone...this was a 20% increase from the previous year.  There were also over 1 million returns filed last year which required additional screening due to suspicious entries that could have indicated identity theft, an increase of 72% from 2010.

Each of these cases represent time and money spent by the IRS in the form of labor and paperwork, resulting in millions of dollars being wasted because of identity thieves.  And of course, each case signifies another victim left fighting to retrieve their identity, refund, and peace of mind. It doesn't help knowing that even though tax fraud crimes are on the rise, the money allocated to the IRS for investigating this type of fraud in 2012, has been reduced by $300 million dollars. 

If the instances of tax fraud as a result of identity theft continue to grow as they did from 2010 to 2011, the IRS may very well be overwhelmed with these cases and will be unequipped to combat the problem effectively.  If the IRS budget isn't able to keep up with the manpower and technology costs required to successfully combat identity theft, we can be sure that our tax refunds will continue to draw the interest of thieves. 
 
The troubles that come with a stolen Social Security number can bring about a number of complex problems -and can take months or years to sort out.

Just ask Yazmin, a 26-year-old victim from Springfield, MA, whose identity was stolen more than 7 years ago. Yazmin's records show she has been arrested for a DUI, spent time in jail, owes lots of money in unpaid tickets and has quite an employment history. She couldn't drive for two months after learning her driver's license was revoked for unpaid tickets --all in her name.

Yazmin's story illustrates the difference between credit card fraud and the type of fraud that can haunt you for years to come. Her story humanizes the impact --and shows why it's so important that you take responsibility for keeping your data and identity secure.  With continued reports of tech savvy criminals, routinely hacking into corporate databases, there's simply no guarantee that they won't find their way into a database storing your sensitive data.

UPDATES  

The Taxpayer Advocate Service is Your Voice at the IRS! 
 
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. They help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving problems with the IRS; and those who believe an IRS system or procedure is not working as it should.

Find help for your situation

Learn about the ten things every taxpayer should know about the Taxpayer Advocate Service.

Additional info can be found here:  The IRS scam and alert page  

Taxpayers waiting in line for hours!
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Turned away at the IRS!