The good news is that late last week the IRS initiated new policies to help reduce income tax identity theft which costs taxpayers 5 billion dollars per year.  The better news is that the new policies include significant information sharing between private companies such as Intuit, which makes the popular Turbo Tax program which has been utilized by identity thieves to accomplish income tax identity theft and the IRS.  The cooperation and information sharing between the IRS and private companies involved with income tax preparation will aid in the recognition of new forms of identity theft and the development of defenses.

Included among the new policies being implemented are the crosschecking of electronically filed returns with Internet addresses and computer addresses as well as scans that will determine the time it took to complete an online return to help determine when a fraudulent return is being filed.

However the bad news is that Congress still hasn’t taken the most basic step necessary to dramatically reduce  income tax identity theft, namely requiring employers to send W-2s to the IRS directly and in a timely fashion before the IRS sends out tax refunds.  Presently, employers file their W-2s with the Social Security Administration (SSA) in February or March depending on whether the W-2s are filed electronically or on paper.  The SSA does not get around to sending the W-2s to the IRS until late July so that by the time the IRS compares the actual W-2s with the information contained in income tax returns, the IRS has already sent out billions of dollars of fraudulent refunds.  The simple step of requiring companies to file their W-2s with the IRS early in the tax season so that the IRS can compare the real W-2s with the information contained in filed income tax returns before sending out refunds could eliminate a large amount of income tax identity theft.

TIPS

The best way for all of us as individual taxpayers to avoid becoming a victim of income tax identity theft is to protect the privacy of our Social Security numbers and file our legitimate income tax returns as early as possible.  Income tax identity theft can only be accomplished if the identity thief has your Social Security number and files an income tax return before you file your legitimate return.

As for Congress, how many more billions of taxpayers dollars needs to be lost to income tax identity theft before they take the simple step of reforming the laws regarding the filing of W-2s?