Income tax identity theft, by which identity thieves file phony income tax returns with counterfeit W-2s using the Social Security number and name of their victims is still a major problem for the IRS and taxpayers costing us all billions of dollars each year.  Earlier this year,  the IRS established a pilot program known as the Identity Theft Tax Refund Fraud Information Sharing and Analysis Center (ISAC) to enable the IRS to collaborate with state tax administrators, tax preparation companies and tax software companies and share information in order to combat income tax identity theft.  Presently 31 states, 14 tax preparation companies and three financial institutions participate in ISAC   The Government Accountability Office (GAO) recently reviewed the progress of ISAC and while generally the GAO was satisfied with the efforts of the IRS in regard to ISAC, it was quite critical of the program’s data analysis plan which would make it difficult for the effectiveness of ISAC’s efforts to be evaluated and measured.
While, the IRS continues to fight income tax identity theft, we all must do our part to protect ourselves from becoming a victim of income tax identity theft.  It can take a long time to get your legitimate refund if you become a victim of income tax identity theft.
Along with protecting the privacy of your Social Security number as much as possible, the best thing you can do to protect yourself from income tax identity theft is to file your income tax return as soon as possible in order to make sure your return is filed prior to that of an identity thief.  Income tax identity theft only works if the identity thief files a tax return before you do.
If you do find yourself a victim of income tax identity theft, you should file a police report immediately and then file a paper tax return with an attached Form 14039 Identity Theft Affidavit along with a copy of the police report to the IRS to hasten the process of recovering your tax refund.