The IRS reported more than 51,000 cases of apparent taxpayer identity theft last year and paid out more than $15 million to fraudulent tax refund claims, according to a report released by the Government Accountability Office (GAO).
Identity theft usually becomes a problem for victims when a thief files a fraudulent tax return to claim a refund, typically using a stolen Social Security number.
The IRS is fighting back. In 2007 the agency established the Online Fraud Detection and Prevention Office. The office helped shut down more than 3,000 websites suspected of stealing taxpayer information in 2008. It also shut down 949 malicious sites through April of this year.
Overall, the GAO says tax identity theft creates a problem for a relatively small number of people, but those problems can be serious and long-lasting because, according to the report, thefts don’t typically surface at the IRS until well after the theft has occurred.
According the IRS, the agency was able to stop about 90 percent of $164 million worth of refunds identified as fraudulent last year and is refining its procedures for dealing with identity theft.
Another tax problem caused by identity theft is the use of someone else’s name and Social Security number to obtain a job. Income reported to the account as a result of the fraudulent employment can then appear to be income unreported for the legitimate owner of the number. This could subject the taxpayer to IRS enforcement action – which, unfortunately can take many months to resolve.
