Tax Season a Time for Fraud

You know about thieves stealing your credit cards, or even accessing your bank statements. But did you know that your tax refund is also at risk?

The Seattle Post Intelligencer has exposed the story of a woman who found a case of fraudulent tax return under her name – a thief who has filed taxes under her Social Security Number that would result in a refund. It could be that many other people will find themselves the victims of identity theft this tax season.

An unnamed woman sat down at her computer to file her taxes, but they kept being rejected with an error that a tax return had already been filed under her Social Security Number. After calling the Social Security Administration and the IRS, she found that the tax return had been filed under a different address – not hers.

The thief had filed a fraudulent tax return under her name – this tax return would yield a cash refund. And so, the woman now has to file a police report, a complaint with the FTC, put a fraud alert on her credit report, and to go through the process to prove her identity in order to submit her real tax return.

An earlier Seattle PI story painted a dire picture of the process: another tax preparer who found herself a victim of identity theft was unable to receive her tax refund until two months, and many calls, later. And she may have been lucky. Finance Committee Chairman Max Baucus says that it takes a year, on average, for the IRS to sort out the real tax payer and to issue a refund.

According to a new audit [PDF] out from the Treasury Inspector General for Tax Administration, fraudulent tax returns are becoming all too common. Complaints of this type jumped 579% in the five years leading to 2007, with 20,000 complaints in 2007.

Sadly, the report found that the IRS is doing very little to stop or to prosecute those who commit this form of identity theft. Prosecution is only pursued if the identity theft occurs in conjunction with other criminal offenses.

IRS policy is that the actual crime of identity theft will only be investigated by the Criminal Investigation Division if it is committed in conjunction with other criminal offenses having a large tax effect.

Such a lack of prosecution may explain the huge jump in incidents seen over the last few years.

image: penywise via morguefile ; Tags: identity theft, id theft, fraud, tax fraud, identity fraud, irs, government, irs policy, taxes, tax, criminal