Taxpayer-ID Theft Climbs Despite IRS Crackdown

Taxpayer identity theft is growing even as the Internal Revenue Service has taken a series of steps to prevent it, according to a Government Accountability Office report.

The IRS identified 248,357 instances of such theft in 2010, compared with 169,087 in 2009 and 51,702 in 2008, according to the GAO.

Identity thieves cash in on stolen names and Social Security numbers by filing fraudulent tax returns or by using such data to obtain a job.

The GAO report didn’t estimate how much money was stolen through these methods. Fraud using a tax return typically occurs when a thief obtains a taxpayer’s name and Social Security number and files a return claiming a refund early in the tax season, before a legitimate filer has a chance to send in a return.

Employment fraud, in particular, can be tough to spot because of the long period between the theft and the processing of an illegitimate tax return.

“By the time both the victim and the IRS determine that an identity theft incident occurred, well over a year may have passed since the employment fraud,” the report said.

Senator Bill Nelson, a Florida Democrat, said at a hearing on May 25 that taxpayers whose information has been stolen enter “an extended nightmare” as they work with government agencies to solve the thefts and settle issues with banks and other bureaucracies.

The GAO said the IRS has improved screening of returns and is trying a new way of weeding out the use of stolen Social Security numbers of deceased taxpayers.

The IRS also is experimenting with giving victims of tax fraud personal identification numbers to thwart repeat cases in years after the initial theft.

Privacy laws and taxpayer demand for prompt refunds limit what the IRS can do to combat such fraud, officials said.

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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