Credit-Land Report: Tax-Related Identity Theft Soars

According to a recent report by the Government Accountability Office (GAO), tax-related identity theft incidents are on the rise, going from 51,702 cases in 2008 to 248,357 in 2010. In these situations, a criminal uses a taxpayer's social security number to file for a tax refund. This may delay the legitimate refund of the authentic taxpayer.

Taxpayer, Sarah Madunicky, states, “It’s very frustrating because you work for something and it’s owed to you, and someone else can go right under there and take it from you.” This year Madunicky’s tax return was declined by the IRS because someone used her Social Security number to file a return beforehand. Madunicky and countless other victims of identity theft are aggravated because the IRS has not been cooperative or responsive towards getting back their tax refunds.

Paul Stephens, director of policy and advocacy for Privacy Rights Clearinghouse, states that, “The incidence of tax-related identity fraud is indeed staggering.” Moreover, he presumes that the number of reported cases is greatly underestimated because it often takes a while to detect tax-related identity fraud.

According to Stephens, consumers are exceptionally vulnerable to identity theft. The only way consumers can defend themselves is by keeping close tabs on their Social Security numbers. In efforts to assist victims of identity theft, the IRS has set up an organization that will support taxpayers with this dilemma.

The GAO has reported that the IRS is making significant strides towards reducing the rate of tax-related identity fraud. The IRS has also improved their methods of detecting fraud by thoroughly screening corrupted tax returns. Approximately 56,000 victims were given individual identification numbers to help safeguard their tax returns. In the future, the IRS plans on enforcing a PIN system for all taxpayers. This additional layer of security would require taxpayers to enter a six digit PIN to file a tax return.

Unfortunately, the GAO also reports that the law severely constrains the IRS’ ability to protect victims of identity theft. Because of privacy laws, the IRS is not permitted to disclose identity theft information with other organizations. While the IRS spends time figuring out ways to sidestep these privacy laws, consumers should take precautions to protect themselves. Research analysts suggest that consumers use free online credit reports to help catch identity theft quickly if it occurs.

Bryant Park

Bryant Park is a financial consultant for one of the companies listed on Wall Street. He writes on a variety of topics ranging from credit cards to different loans that can be availed by consumers. He holds a bachelor degree in Financial Services from Dartmouth College.