Income tax identity theft is a huge problem, which last year alone cost the federal government and, by extension, we, the taxpayers, more than five billion dollars in refunds paid by the IRS to identity thieves filing phony returns, often using stolen Social Security numbers of innocent taxpayers.  However, according to a recent report by the Treasury Inspector General for Tax Administration (TIGTA), phony income tax returns filed by criminals who are already incarcerated cost the IRS more than seventy million dollars in 2012, the most recent year for which TIGTA had records.  Although the IRS noted that it had identified and prevented more than 100,000 phony refund-claiming income tax returns, TIGTA concluded in its report that “Tax refund fraud associated with prisoners remains a significant problem for tax administration.”  TIGTA also found that the IRS had failed to implement four of six recommendations of TIGTA in regard to reducing income tax fraud by prisoners.

TIPS

Income tax identity theft is a major problem.  In regard to tax refund fraud associated with prisoners, it is not known to what extent prisoners are filing fraudulent tax returns using the Social Security numbers of other people because the IRS has not, as required, reported to Congress in a timely basis reports that indicate the extent to which prisoners are filing fraudulent tax returns using the Social Security numbers of other people.  As for the rest of us, fraudulent income tax returns filed by identity thieves using stolen Social Security numbers is a major problem.  The key to protecting yourself from this threat is to file your income tax return as soon as possible in order to beat an identity thief to the punch and to protect the privacy of your Social Security number as much as possible.