Identity theft through which the identity thieves use someone’s Social Security number to file a phony tax return complete with counterfeit w-2s and 1099s is a major problem for the IRS and the people whose identities are stolen. Using fake w-2s and 1099s the identity thieves claim large refunds from the IRS. The IRS has paid out 21 billion dollars in bogus refunds to identity thieves over the last five years while real taxpayers whose Social Security number were compromised find that they are often caught in the bureaucratic maze of the IRS and may not get their legitimate refund for as long as a year. This week seven people were indicted in Newark, New Jersey in regard to a typical phony tax return scam that cheated the IRS out of millions of dollars. The scheme started with the theft of the Social Security numbers of residents of Puerto Rico. Puerto Rican Social Security numbers are highly sought after by identity thieves because citizens of Puerto Rico are not required to pay federal income taxes on their income, which makes the identifying of phony returns more difficult for the IRS. Once the refunds are issued by the IRS, they are sent to addresses provided by the identity thieves who, in this case, bribed postal carriers to intercept the checks. The postal carriers were paid $400 for each check they delivered to the identity thieves.
The IRS proclaims that they are taking increased steps to reduce tax identity theft and that may be true, however, what they are not doing is a simple step that would be an easy way to stop identity theft. Phony w-2s and 1099s are not compared to the real w-2s filed by employers until June or July by the IRS although they send out the refunds months earlier without bothering to do this simple cross check to identify fraudulent returns. As for we, the public, the best thing we can do is to protect our Social Security number as much as possible. Do not carry your Social Security card on your person. If it is stolen, you could easily become a victim of identity theft. Limit the places that you provide your Social Security to in your ordinary business transactions. File your income tax return early in order to beat the identity thief to the punch. If you file electronically, make sure that the computer you use is secure and protected with the proper Firewall and updated security software. Taking these easy steps can provide some protection from tax identity theft.