Epidemic of ID theft hits seniors
The IRS is struggling to combat identify thieves who file fraudulent tax returns in the names of older residents who don't need to file.
This post is by Kay Bell at Bankrate.com.
That was the consensus at a recent congressional hearing examining what the Senate Special Committee on Aging calls an epidemic of identity theft among seniors and other taxpayers.
Why the focus on older Americans? Because many of them aren't required to file a tax return. If a person relies solely on Social Security benefits, that money isn't taxed. Even if they supplement their golden years' earnings, as long as the amount doesn't exceed a certain threshold, the income is not taxable, meaning they don't have to worry about reporting it to Uncle Sam.
Since these senior citizens don't have to file a return, they are often unaware that their identities have been stolen to file fraudulent tax returns, Treasury Inspector General for Tax Administration J. Russell George told the Senate hearing.
And that's where the Catch-22 comes in. If the individuals don't report the ID theft, there's no way for the IRS to know the returns are fraudulently filed. The agency typically doesn't learn about falsely filed returns until the real taxpayers submit the correct, but duplicate, 1040 forms.
So the fake tax refunds are paid out to the criminals. And that means taxpayer dollars are lost.
Increasing tax ID theft
Tax identity theft has continued to increase among all taxpayers, not just older folks. In 2011, the IRS identified more than 1 million such instances. As of Dec. 31, 2012, the IRS reported almost 1.8 million tax ID theft cases.
The 2012 number includes approximately 280,000 cases brought to the IRS' attention by taxpayers who reported they were victims of identity theft. More than 1.5 million ID theft incidents were detected by the IRS as potential identity theft.
George told senators that because of the delay in the start of this year's filing season, his office has yet to compile data or compare trends. "However, it is highly likely that incidents of identity theft will show a continued increase when the current filing season is concluded," he said.
IRS ramps up efforts
The inspector did offer one bit of positive news on federal efforts to combat tax identity theft.
In late March, the IRS announced it was expanding a program designed to help law enforcement officials nationwide obtain tax return data for their investigations and prosecutions of specific cases of identity theft. It's a continuation of a pilot program started in April 2012 in Florida that gave state officials the ability, via a written disclosure consent waiver from the victim, to obtain tax returns filed using the victim's Social Security number.
The pilot was expanded in October 2012 to eight additional states -- Alabama, California, Georgia, New Jersey, New York, Oklahoma, Pennsylvania and Texas. Now such tax information sharing is available in all 50 states and the District of Columbia.
Prosecution of ID thieves will help. Prevention is better.
The IRS says it's working on that, too.
In an op-ed piece in USA Today following the Senate hearing, Deputy Commissioner of the IRS Beth Tucker cited some of the agency's efforts. Among them are security filters used in processing returns. She says the agency's efforts have "already blocked 2 million suspicious returns."
Federal funds key
That's a good start. Here's hoping that Congress will do its part and make sure the IRS has the funding it needs to keep these programs in place and add more as needed to keep identity thieves' hands off our tax returns.
That's not just my wish. TIGTA's George told lawmakers the same thing.
"Without the necessary resources, it is unlikely that the IRS will be able to work the entire inventory of potentially fraudulent tax returns it identifies," he said. "The net cost of not providing the necessary resources is substantial, given that the potential revenue loss to the federal government of these tax fraud-related identity theft cases is billions of dollars annually."
More from Bankrate.com and MSN Money:
The IRS should be abolished and the collection of taxes turned over the the individual states that already have agencies in place. It would put control in the hands of people we already deal with and that are living in our area of the country. It would in effect enrich our home state promoting fair taxation. This would eliminate a tremendous amount of duplication of services. The IRS consumes over 60% of all the money it collects just to collect it. In addition there are no set regulations involved about audits, they are up to the individual auditors discretion. I was in public accounting for a number of years and dealt with many auditors both state and federal. If the cumbersome and tangled tax laws were done away with and a flat federal sales tax imposed in their place it would eliminate the need for rigorous accounting by corporations for the sole purpose of tax management. It would also even out the tax burdon as everyone even visitors or illegal's would be paying their share. It would be based on each individuals spending habits and what they could afford to spend. But that is far far too simple and practical, can you tell I'm not a politician?
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