Tax Refunds for Identity Theft Victims Likely to be Delayed

Are you an identity theft victim?  Well, you are likely to be more victimized this tax season.

Last year, identity theft victims were told to expect to wait 180 days (or approximately 6 months) for their tax returns to be processed.  According to Taxpayer Advocate Service, an IRS watchdog group, the delay this year could be similar or even longer than last year's wait.

The IRS waits to give tax refunds until it completes a load of internal paperwork, even if the IRS has already determined that the identity theft victim is entitled to a refund.

When the Taxpayer Advocate Service reported to Congress recently, it recommended faster refund access and setting up a single point of contact for victims.  However, the IRS contends that its current system is effective and that it has improved procedures for stopping identity theft.  Let's hope so, because tax return identity theft has been rampant the last few years.

Death and taxes - identity thieves put both to work with latest scam

They* say that the only certainties in life are death and taxes.  Identity thieves are now taking advantage of both in a new scam.  Thanks in part to the publication of the "Death Master File" (sounds like something from a Hitchcock movie) that lists the Social Security number and other information about the deceased, identity thieves are being able to file tax returns in the names of dead people or use deceased persons as dependents, thereby increasing their tax refunds.

According to the IRS, tax related identity theft has victimized nearly 500,000 tax payers since 2008.  The IRS has already flagged another 91,000 suspicious returns for investigation this year.

Another problem is that the IRS won't tell victims of this or other tax related identity theft who the suspected perpetrator is.  This protects the privacy of the criminal but also makes it harder for the victim to defend himself from other forms of identity theft committed by the criminal.

I have had many calls about tax refund identity theft over the past two years.  The problem is there really isn't anyone to sue (unlike when accounts are fraudulently opened, you can sue the company that negligently opened the fraud account or the credit bureau that continued to report the fraud account after being alerted to its fraudulent nature).  So its hard for me to do anything with these cases other than give the victim some advice, primarily do whatever the IRS says so they can get it straightened out.   And that's the same advice I give to all of you, that and be vigilant and diligent in your fight if your identity is ever stolen.

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*  As my wife always says, who is this "they" you speak of?

Fraudulent tax returns a real problem for IRS and identity theft victims

The Government Accountability Office reported that in 2008 the IRS had cataloged over 50,000 incidents of identity theft related refund fraud and employment fraud.  Approximately 90% of those incidents were stopped before refunds were issued, with about 15 millions fraudulent refunds being sent out.

90% sounds good, but that's only including the incidents that the IRS recognized as fraud.  The IRS does not know the amount of tax refund fraud that goes undetected.  In 2008, the IRS implemented new initiatives to protect consumers from fraudulent activity, including utilizing an identity theft indicator that it places on victims' accounts so IRS personnel can more readily recognize the victim if future problems occur.  They have also decentralized the fraud assistance process, making the area of the IRS that discovers the problem responsible for getting it corrected. 

The IRS claims it is hampered in its efforts because of privacy concerns, which limits its ability to coordinate with other agencies. 

The report from the GAO does not include the IRS' role in other instances of identity theft.  For instance, I am currently represnting an identity theft victim whose identity thief obtained student loans using my client's name and SSN.  When the student loan was not paid by the identity thief (or my client who had no idea there even was a student loan in his name), Sallie Mae, the servicer of the loan, assigned it to a collection agency for collection.  My client was contacted and he repeatedly disputed the fraudulent student loan with Sallie Mae, the collection agency and the CRAs.  Despite his disputes, Sallie Mae caused the IRS to seize my client's legitimate tax refund (approximately $3100).  After disputed this some more, the IRS wrote him and told him the hold on future refunds was lifted, but it did not pay him the $3100 it had already seized.  Then, the next year, the IRS again seized my client's tax refund and then, after the seizure, wrote another letter that the hold had been lifted. 

I doubt the GAO's survey includes this particular type of fraud being committed on the IRS, fraud by Sallie Mae and its collection agencies.  But something needs to be done about that to protect future consumers.

Identity theft can cause you problems with the IRS

Below is a story about help for consumers who have the IRS after them because someone worked (and received pay) under their name and SSN but, of course, failed to pay taxes on the income. I have a client who has a similar story about identity theft causing him problems with the IRS.

"TaxRelief.net a leading provider of tax relief and referral service for tax attorneys has partnered with The Tax Defense Network in an effort to bring its clients even better solutions. Every year hundreds of thousands of Americans are contacted by the IRS regarding a tax debt. With identity theft one of the fastest growing crimes in the US the possibility of someone stealing your social security number simply to be able to work and then not pay taxes on that earned income is becoming a strong reality.

Brenton King, a 25-year-old father and student from Utah had his identity stolen when he was 17 and on vacation. Over the last four years at least five individuals have used his social security number to earn income and not pay taxes. The end result has had King unable to collect on past tax refunds and stimulus checks.

'In a situation like this we first have to establish that Mr. King was in fact a victim of identity theft and that he isn't responsible for these back taxes that are due. Then once Mr. King establishes a new social security number we can then move onto reclaiming any refunds or monies that are owned to him by the IRS.' - David Dugan, Spokesperson for TaxRelief.net.

It's certainly a frustrating situation to be in. That's why so many Americans are turning to IRS Debt or tax relief specialists. It can be difficult to know where to begin and having a tax professional there to help certainly makes it easier. TaxRelief.net is partnering with The Tax Defense Network in an effort to make an even greater team of tax specialists available to their clients. 'We're not just seeing an increase in the number of clients due to an increase in audits, but unfortunately because of situations like this where someone has had their identity stolen and the IRS is holding them responsible for any tax penalties.'"

The whole article can be found here - http://www.prweb.com/releases/tax/relief/prweb2569814.htm.