With just three weeks until the federal tax deadline, hundreds of thousands of Americans have reportedly been victimized by the No. 1 crime in the United States - identity theft, according to the Seattle Post-Intelligencer on Monday.
Or in the case of the illegally filed income tax return — tax return identity theft.
So lucrative is the crime of tax return identity theft, that criminals, many of them drug dealers, armed robbers and gang members, who once relied upon firearms and violence to commit crimes, are now tucking them away in favor of laptops, direct deposit, prepaid debit cards and blind mail drops.
Tax return identity theft has become so popular that politicians, government workers – including IRS employees — professional athletes, police officers, firefighters, lawyers and military personnel have been accused of and charged with identity theft and tax fraud schemes nationwide. Several have been sent to federal prison.
So staggering are the numbers of reported identity theft crimes, that according to the General Accountability Office, the Internal Revenue Service detected almost 915,000 cases of identity theft last year. Most victims are unaware they have been victimized until they file their tax returns. Only at that time do they learn that someone else has already claimed a refund in their name.
Astronomical as it sounds, these statistics do not include the almost 480,000 fraudulent refund claims filed using the Social Security numbers of Puerto Rican citizens, who generally do not file federal tax returns unless earning stateside income, or the almost 1.5 million bogus tax returns claiming over $5 billion in refunds, according to the IRS.
While the exact numbers of fraudulent tax returns reported vary from source to source, identity thieves are exploiting a system in which the IRS does not process the W-2s and 1099s it receives for taxpayers until long after a refund is issued. Fraudsters in possession of a valid name and Social Security number frequently create phony W-2s and related forms in search of a quick refund.
Taxpayers are urged to file early as a bogus claim will not be processed if a real tax return has already been filed for the year. If the fraudster files first, the refund process can exceed 180 days while being investigated.
“When a taxpayer who is owed a refund becomes a victim of identity theft and the thief files a return first, the victim can still get their money by going through an agency process,” IRS spokeswoman Jennifer Jenkins told Examiner. “This process involves the completion of several affidavits and an investigation by our agency.”
According to the IRS, identity theft and false tax return refund fraud is a “top priority,” as the agency has assigned more than 3,000 employees to investigate these cases and trained an additional 35,000 in the basics of ID Theft. While over $5 billion in fraudulent tax returns made its way through the system in 2013, the agency reports that from 2011 through November 2013, it caught more than 14.6 million suspicious tax returns involving more than $50 billion in fraudulent refunds.
This should be of particular concern for Utahns as identity theft complaints have, according to the Federal Trade Commission, almost tripled in the Beehive state since 2010.
Last month, the Senate Judiciary Committee passed a companion version of legislation written by U.S. Representative Debbie Wasserman Schultz (D-Fla.) that would make tax return identity theft a greater priority for the federal government and strengthen criminal penalties against identity thieves.
The “Stopping Tax Offenders and Prosecuting Identity Theft Act” would also expand the definition of an identity theft victim to include not only individuals, but also businesses and organizations that have had their identities stolen for phishing schemes in an attempt to obtain sensitive personal information from consumers.
“Every year, millions of hard-working Americans file tax returns in the hope of paying bills, creating savings or even taking a vacation, sadly discover that one has already been filed and a refund claimed,” Congressman Debbie Wasserman Schultz told Examiner. “This legislation is imperative to better protect tax filers and penalize criminals for their actions.”
If passed, the legislation would require the U.S. Department of Justice to focus on communities that have been hardest hit by the exploding identity theft crisis.
Schultz said that the bill will require tougher sentences — a minimum two-year prison sentence for each tax-return related identity theft conviction instead of the current up-to-two-year term.
“It’s a low-risk crime that cost taxpayers almost $5.8 billion in fraudulent tax refunds last year,” Schultz stated.
Local, state and federal law enforcement officials agree that tax return identity theft is running rampant nationwide.
“Tax return identity theft is big business, even for the IRS,” agency commissioner John Koskinen told KSL. “We have stopped almost $18 billion in false returns from going out. We keep updating our technology systems, our filters. We're dealing with organized crime. These are not people filing a single return.”
In 2010, the Internal Revenue Service reported fewer than 50,000 falsified tax returns and $247 million in fraudulent refunds.
Nearly 29 percent of Americans filing identity theft complaints to the Federal Trade Commission last year indicated they had fallen victim to wage or tax fraud. That number has more than doubled since 2008 when only 12.3 percent of identity theft complaints were related to wage or tax fraud.
In 2013, the FTC received over 290,000 complaints concerning identity theft, a substantial increase from the previous year.
Falsified returns are especially easy for thieves to manipulate. The Internal Revenue Service does not authenticate tax returns or W-2 forms prior to issuing a refund. All a fraudster needs is a name and Social Security number, a new address, a bank account or debit card number, and they are in business.
In some cases, identity thieves make up names and Social Security numbers fully aware that the IRS does not compare personal identifiers such as a name and Social Security number.
As a result of online filing and tax preparation services offering rapid refunds, identity thieves are able to have fraudulent refunds deposited to a anonymous debit card within days.
Commissioner John Koskinen indicated that the IRS has made a "quantum leap" in investigating identity thieves in the past couple of years. In 2013, the Internal Revenue Service conducted almost 1,400 investigations into tax refund fraud, up from only about 200 investigations in 2011. In that same time period, recommendations for criminal indictments rose from about 150 to more than 1,100.
The agency won about 800 convictions last year, Koskinen added.
"We're now sending a strong message that if you get caught — and we're chasing you hard — and you get convicted, the sentence is not just a month or two," he said. "People are going away for 10 to 20 years."
Tax return identity theft has reached such epidemic proportions that it once again tops the list of the IRS’s Dirty Dozen Tax Scams for 2014.
The IRS acknowledged that it does not routinely match taxpayer names with Social Security numbers until after a refund is issued: "It all starts with a Social Security number," Koskinen stated.
Victims of tax return identity theft or taxpayers who believe they are at risk as a result of lost or stolen personal information should contact the IRS Identity Protection Specialized Unit at 800-908-4490. Taxpayers will be required to complete an IRS Identity Theft Affidavit — Form 14039 — to initiate the investigation process.
“As an identity theft victim, this whole process has been very frustrating,” Weston resident Bina Fink Kohl, told Examiner. “The IRS tells me they have increased the use of screening and filtering to detect and defer fraud, but I’m not sure. Each and every time I file my tax return I remember being scammed and ripped off. It’s not right.”
As a nationally recognized credit repair and ID theft expert, Bill Lewis is principal of William E. Lewis Jr. & Associates, a solutions based professional consulting firm specializing in the discriminating individual, business or governmental entity.