Jesse Scott Wilson of Alaska was recently sentenced to 92 months in prison for his role in an income tax identity theft ring that electronically filed at least 428 phony income tax returns using stolen Social Security numbers resulting in refunds of $681,258 being paid to Wilson and his three cohorts. Wilson will not have to go far in order to start his prison sentence because both he and his fellow conspirators were already incarcerated in an Alaska prison throughout the time that they managed to pull of their crime. This just serves as an example of how incredibly easy it has become for someone to commit income tax identity theft which costs the American taxpayers billions of dollars each year.
In 2015 the IRS instituted a new cooperative effort between the IRS, state tax administrators and private tax preparation leaders. Included among the steps being taken are review by the IRS of the IP address of computers filing income tax returns to identify computers filing multiple returns and reviewing the time it takes to complete an electronic income tax return which can also help identify fraudulent returns since completing a fraudulent return generally takes less time than a legitimate return. In addition, income tax preparation software companies will be using enhanced validation protocols including increased use of security questions.
However, all of these steps which are expected to cost taxpayers an additional 281 million dollars to implement totally miss the point. The easiest and simplest way to dramatically reduce income tax identity theft still is not being done by Congress, namely changing the laws regarding employers filing of W-2s. Under present law, for the upcoming tax filing season, employers must file W-2s with the federal government by February 29th if they file paper W-2s and as late as March 31st if they file, as so many do, electronically. Unfortunately Congress in its infinite wisdom requires these W-2s to be filed with the Social Security Administration (SSA) by those dates. The SSA does not send the W-2s to the IRS until July so the IRS does not get around to matching the W-2s filed by employers with those filed by individual taxpayers with their income tax returns until months after the IRS has already sent a refund based on the W-2 filed by the taxpayer or identity thief. In order to dramatically reduce income tax identity theft, all Congress has to do is merely require employers to file W-2s with the IRS instead of waiting for the SSA to send them to the IRS. It also would make much more sense than Congress appears to have to require the IRS to match those employer filed W-2s with those filed by individual taxpayers BEFORE sending out a refund in order to easily identify counterfeit W-2s. For years Congress has been advised to make these simple changes, but it still fails to do so.
Try as it may, the IRS is having a difficult time stopping income tax identity theft by which an identity thief steals your personal information and files a phony income tax return using your name and gets a refund. Along with protecting your personal information, particularly your Social Security number as much as you can, the best thing you can do to avoid becoming a victim of income tax identity theft is to file your income tax return early. Income tax identity theft can only work when the criminal is able to file an income tax return using your name and Social Security number before you file your own legitimate income tax return so consider filing as early as possible.