Earlier this week, the General Accountability Office issued a new report dealing with income tax identity theft and what the IRS should be doing to reduce this problem which, last year alone cost taxpayers more than 5 billion dollars in fraudulent refunds paid to identity thieves who stole the Social Security numbers of innocent taxpayers and filed phony income tax returns along with counterfeited W-2s. A report last year done by the Treasury Department predicted that the IRS will pay out more than 21 billion dollars in fraudulent tax refund checks over the next five years. As for the innocent taxpayers whose Social Security numbers were used in these fraudulent returns, it sometimes takes as long as a year for the IRS to correct the problem and pay to the real taxpayer his or her legitimate refund. In its report this week the GAO singled out a significant failing in the way that the IRS processes income tax returns, namely under the present system, W-2s are sent by employers not to the IRS, but to the Social Security Administration who often does not get around to forwarding these to the IRS for matching with already filed income tax returns until July, well after most tax refunds have been paid. A simple solution would be to require e-filing or simultaneous filing with the IRS of the W-2s before refunds are sent out. Regular readers of Scamicide.com may remember that I exposed this problem and made the same recommendation more than a year ago in my Scam of the Day of August 3, 2013.
In order to avoid income tax identity theft personally, you should file as soon as possible to beat a potential identity thief to the punch. You should also try to protect the privacy of your Social Security number as much as possible to minimize the opportunity for an identity thief to file an income tax return using your name and number.