Feature Article
Mark Pribish
IRS Struggles to Curb Taxpayer Identity Theft and Refund Fraud
By Mark Pribish
Vice President and ID Theft Practice Leader

In the last six years, Merchants Information Solutions, Inc. has supported its mission to educate consumers on current and emerging ID theft trends by publishing this monthly newsletter.

One of the emerging identity theft trends that we have been in front of is taxpayer identity theft, which we are writing about for the sixth consecutive year.

That said, and to begin with, taxpayer identity theft and refund fraud happens when ID Theft criminals steal the Personally Identifiable Information (PII) of taxpayers and file fraudulent refunds in their names. When the real taxpayers file, their refunds aren't paid until the IRS resolves their individual case.

Unfortunately, refund fraud can result in legitimate taxpayers waiting up to six months or more to reconcile their refund fraud event with the IRS prior to receiving their refund.

So what is being done about taxpayer ID Theft and refund fraud? First, the General Accounting Office (GAO) released its Identity Theft and Refund Fraud Study on November 29, 2012 and reported that there were over 1.2 million tax-related identity theft incidents over the last five years including the following breakdown by year:

2008 - 47,730 tax-related Identity theft incidents
2009 - 165,524 tax-related Identity theft incidents
2010 - 147,680 tax-related Identity theft incidents
2011 - 242,142 tax-related Identity theft incidents
2012 - 641,690 tax-related Identity theft incidents

Based on the above exponential growth and how the Internal Revenue Service (IRS) has been struggling to minimize taxpayer identity theft and refund fraud, the IRS has added filters to its system to check for signs of identity theft to stop suspicious tax returns. In addition the IRS will contact the taxpayer before the return is processed. However, these actions have led to delayed tax refunds for millions of taxpayers.

In addition, a January 4, 2013 Accounting Today article reported on how the IRS has issued proposed regulations to create a new taxpayer identification number that can be used instead of a Social Security Number (SSN) in response to the growing problem of taxpayer identity theft.

This new identification number - known as the Truncated Taxpayer Identification Number (TTIN) - can be used as an alternative to the Social Security number (SSN), Individual Taxpayer Identification Number (ITIN), or Adoption Taxpayer Identification Number (ATIN).

So there is good news and bad news in the war on taxpayer identity theft and refund fraud. The good news is that the IRS reported that they prevented $1.4 billion in refunds from being erroneously sent to identity thieves. Also, through April 2012, they stopped over 325,000 questionable returns with $1.75 billion in claimed refunds using the above referenced filters specifically targeting refund fraud.

The bad news is that the IRS identified 1.5 million tax returns with potentially fraudulent tax refunds totaling in excess of $5.2 billion and the IRS inspector general has publicly stated that taxpayer identity theft and refund fraud is a growing problem involving numbers that are increasing exponentially.

The bad news continues as the inspector general estimates that the IRS could issue as much as $21 billion in fraudulent tax refunds over the next five years (see the article here).

To conclude, taxpayers can minimize their risk of taxpayer and refund fraud by following some simple tips:

  1. Tax preparation service due diligence - be sure to learn the professional background and experience of your tax preparer including background check, training and certification as there is a new problem of tax preparer fraud such as unauthorized filings.
  2. Confirmation of financial documents - be sure to monitor mail and email for tax related documents from your employer(s) and financial institutions.
  3. Telephone scams - do not provide any information (e.g. social security number or bank account numbers) to anyone representing the IRS as the IRS will never request your social security number via telephone or email.
  4. Software security - be sure to update your computer software (whether you file your taxes online, or not) to protect against your PII from being stolen.


To learn more about these threats and how to protect yourself and your family from Identity Theft, you can read my past newsletters at the Merchants Identity Theft Educational Website at www.idtheftedu.com.

Scam Central

Senior Citizens Identity Theft

When a person reaches a certain age, they begin to enjoy specific benefits: discounts on movie theater tickets, discounted meals at local restaurants during certain hours of the day, half-price admission to various local events, etc. It is important to realize that senior citizens have worked hard their entire lives and now they want to enjoy their retirement in the best way possible.

Many senior citizens live on a fixed income, and that can be tricky for those that have health problems. Since the budgets are often tight, every single expense matters. It would seem only natural for a retired individual to take advantage of government-run medical programs designed to help ease or alleviate burdensome healthcare costs for our senior citizens.

Unfortunately, it is just as natural for a clever identity theif to prey on senior citizens that rely on these programs, such as Medicare, and take the hard-earned money right out of their bank accounts. The Better Business Bureau says it is already happening to many senior citizens.

How It Works:

According to the Better Business Bureau article, an unknown caller that claims to be working for Medicare or a similar government agency tells the victim that their new Medicare card is in the mail. In some cases, the caller will also want your Social Security number to verify your identity. The caller then offers to help set up your Medicare or other supplemental funds to deposit directly into your bank account. All you need to do is to give them your bank account information over the phone and the caller will handle the rest.

The only problem is that the caller is of course not working for any government agency or supplemental insurance provider. If you have given them your bank account number, they now have complete access to your hard-earned money. Armed with your Social Security number, the caller can also steal your identity and open up new credit card accounts in your name, leaving you with the bill, and no money to pay for it. A double whammy!

Your Defense:

The best defense for this scenario is to hang up the phone. If a new Medicare card is already in the mail, why do you need to talk to the individual any longer? Why would the government call to tell you a new card is in the mail? While there may be times when a caller does need you to verify your Social Security number, they will most likely already have that information and only ask to verify the last four digits. Never disclose your Personally Identifiable Information (PII) over the phone if you have reservations about the caller and especially if you have not initiated the call. It is much better to be cautious. Hang up the phone, and call the agency yourself to complete the transaction if needed.

We may as well get used to the idea that scammers will always try to take advantage of us any way they can. Their tactics change almost daily. Their best weapon is our ignorance. By becoming aware of scammers tactics and knowing when to disclose our personal information, we can prepare ourselves against any similar fraud attempts in the future. You can stay ahead of the game by understanding when it is appropriate to disclose your PII, and how much to disclose; whether over the phone or online. Stay informed and stay safe!

If you believe your identity has been stolen, call 866.SMART68 today.