I have written in numerous Scams of the day about income tax identity theft and with good reason. Income tax identity theft is a huge problem for the IRS and for taxpayers whose identities have been stolen. I am sure I will be writing more about income tax identity theft as the tax filing deadline of April 15th approaches. For those of you unfamiliar with how income tax identity theft works, it is a simple matter. An identity thief gets access to your Social Security number and files a phony income tax return in your name complete with a counterfeit W2 and/or counterfeit 1099 indicating that a large refund is due. If the IRS does not discover on its own that the income tax return is phony, which is often the case, the identity thief has effectively managed to steal money from the federal government. This is a huge problem costing the government and ultimately, we the taxpayers billions of dollars.
But, how are you as an individual taxpayer harmed? Identity thieves file income tax returns early in order to get a tax return in your name into the IRS before you file your legitimate return. Once you file your legitimate return it is flagged because now the IRS has two tax returns filed for the same person and this delays by as much as six months or more your receipt of your legitimately owed tax refund while the IRS investigates the crime.
The first way you can protect yourself from income tax identity theft is to protect the privacy of your Social Security number as much as possible because your Social Security number is an essential element for the filing of an income tax return. The second thing you can do to protect yourself from becoming a victim of income tax identity theft is to file your income tax return as early as possible so that the identity thief does not have the opportunity to file before you. If you are due a refund, it also makes good sense to get your tax return filed as soon as you can.
The IRS is spending millions of dollars to combat identity theft and they have a special telephone number for you to call if you have become a victim of identity theft. The number for the IRS Identity Protection Specialized Unit is 800-908-4490. The plain hard fact is that there is an easy way at little cost for the IRS to substantially reduce income tax identity theft, but they continue to not do so. W-2 forms are not required to be filed by employers until February or March depending on the manner of filing used by the employer. In fact, the filing is not even with the IRS, but is done with the Social Security Administration. The Social Security Administration does not even send these documents over to the IRS until later summer and the IRS does not match the W-2s filed with the W-2s filed by employers until August, well after the IRS has already paid income tax returns based, in many cases on counterfeit W-2s. How easy would it be to merely require employers to file W-2s with the IRS as well as the Social Security Administration and merely match the W-2s filed with income tax returns with those filed by employers before sending refunds? This simple step could dramatically reduce income tax identity theft at little cost, yet the IRS continues to fail to implement this easy solution.