The Internal Revenue Service found over 245,000 identity theft incidents last year, according to a GAO report assessing the IRS’s efforts to stem the growing problem.
Since 2008, the IRS has identified 470,000 incidents of identity theft affecting more than 390,000 taxpayers. The thieves typically steal, or attempt to steal, the victim's tax refund.
National Taxpayer Advocate Nina Olson told the committee that the IRS has made numerous improvements over the past several years to assist identity theft victims. However, she added, “despite these changes, we are seeing unprecedented levels of identity theft casework.” She noted that the IRS Identity Theft Protection Specialized Unit is struggling to effectively manage identity theft cases, and the population of taxpayer accounts with an identity theft indicator has grown significantly, subjecting almost a million accounts to business rules.
Identity theft harms innocent taxpayers through employment and refund fraud, the GAO report noted. In refund fraud, an identity thief uses a taxpayer's name and Social Security number to file for a tax refund, which the IRS discovers after the legitimate taxpayer files.
In employment fraud, an identity thief uses a taxpayer's name and SSN to obtain a job. When the thief's employer reports income to the IRS, the taxpayer appears to have unreported income on his or her return, leading to enforcement action.
The IRS has taken steps to resolve, detect, and prevent employment and refund fraud:
Resolve—The IRS marks taxpayer accounts to alert its personnel of a taxpayer’s identity theft. The purpose is to expedite resolution of existing problems and alert personnel to potential future account problems.
Detect—The IRS screens tax returns filed in the names of known refund and employment fraud victims.
Prevent—The IRS provides taxpayers with information to increase their awareness of identity theft, including tips for safeguarding personal information. IRS has also started providing identity theft victims with a personal identification number to help identify legitimate returns.
However, the IRS’s ability to address identity theft issues is constrained by
- Privacy laws that limit IRS’s ability to share identity theft information with other agencies
- The timing of fraud detection—more than a year may have passed since the original fraud occurred
- The resources necessary to pursue the large volume of potential criminal refund and employment fraud cases
- The burden that stricter screening would likely cause taxpayers and employers since more legitimate returns would fail such screening