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Impostors still wreak havoc on tax returns

When Aaron Marks tried to electronically file his tax return last spring, it was rejected by IRS computers. The reason, according to the agency, was that someone had already filed a return using his Social Security number. Not to worry, an IRS operator told him on the phone, just mail in your tax return and it'll get fixed. "(The agent) acted like there was nothing to panic about," Marks said.

But a year later, the Boston resident still doesn't have his $2,000 tax refund.

About the same time Marks tried to file, IRS officials testified before the Senate Finance Committee about the problem of tax return ID theft. The committee heard horror stories about the ease of filing false tax returns, the criminals who essentially steal citizens' refunds, and about the thousands of Americans who sometimes spend years dealing with the fallout.

For years, tax return scams have been relatively easy to commit. Armed with a Social Security number and the right company tax ID, criminals could file a return and likely get a refund check, as long as they filed before the legitimate SSN user. In fact, many criminals exaggerated deductions or withholding amounts in the returns to get an even bigger refund check, causing further problems for the real taxpayer down the road.

IRS Commissioner Douglas H. Shulman, who had just taken office weeks before the April 11, 2008, hearing, pledged major changes to stem the growing problem. He promised a new identity theft investigation unit within the IRS and a new 1-800 number for victims. He also said the entire agency would be trained to better handle the problem.

"If you say the words 'identity theft,' you'll be sent to a person trained to deal with identity-theft victims," he pledged.

The changes have achieved mixed results.

The IRS launched its new unit, the IRS Identity Protection Specialized Unit. There's a Web site and a toll-free number for victims at 1-800-908-4490 that's staffed 12 hours per day.

Aaron Marks, however, still hasn't received his $2,000 from the 2007 tax year, or, his 2008 stimulus check. And this year, when he tried to electronically file, his return was again rejected. He called the IRS. An agent told him to paper file. He insisted that more action be taken. He demanded a manager. She told him his refund check was sent out last year, but wouldn't tell him where, or even confirm that it wasn't sent to his home address.

"Then she told me to tell the Federal Trade Commission," he said. When he filled out an FTC Identity Theft affidavit, he was then told to get a police report.

"The Boston PD aren't going to know what to do about this," he said. Including his expected refund from this year, Marks figures he's out $4,000 right now. Meanwhile, he figures, a criminal is running around with his tax refund.

"The only reason I found out about this was because I expected money back," he said. "Who knows how big this problem really is?"

The IRS says it knows, and it's miniscule. Spokeswoman Michelle Lamishaw said tax return ID theft hit a tiny fraction of 1 percent of all returns all returns last year.

"It is not what we consider widespread," she said. "But the impact on individuals we take very seriously." Lamishaw said she was unable to discuss Marks' situation because IRS agents are not allowed to publicly discuss any taxpayers' account.

'A huge potential to really address the problem'

Nina Olson runs the National Taxpayer Advocate Service, an agency that helps citizens engaged in entrenched battles with the IRS. A frequent critic of the agency, she gave it relatively high marks for its new identity theft initiatives.

For the first time, she said, the agency has initiated a "flag" to track citizens struggling with identity theft. Even consumers who merely suspect they might suffer tax return fraud -- for example, a victim who lost a wallet -- can now ask the IRS to add such a flag and not send a refund check to a potential imposter. And it has developed "business rules" to help it determine the rightful SSN user when multiple returns are filed, similar to rules used by credit card firms to identify fraudulent credit card transactions, she said.

The agency also has added the ability to proactively inform a citizen if a Social Security number is being used by someone else, she said. The agency has plans to send warning letters to SSN holders, but has not begun. Only recently did it get legal clearance to send such letters, she said.

"The new unit has a huge potential to really address the problem," she said. "The progress in the last year has been enormous."

On the other hand, the National Taxpayer Advocate Service has seen an 88 percent increase in ID theft cases this year over the same period last year. It's unclear if the spike means an increase in crime or merely an increase in awareness, but either way, the problem is still severe, she said.

Last year, there were 24,000 known cases of tax ID theft, and that number severely undercounts the actual number of victims, many whom have yet to discover the problem, she said.

"Those 24,000 taxpayers are spending their lives on the phone. Maybe their wages are being garnished. Maybe they found out because there was a lien," she said. "For those victims the problem is very real. It's often a full-time occupation to fix it."

No faith

It's not clear why Marks' case continues to slip through the cracks. Lamishaw said IRS operators be aware of the agency's ID theft hot line, but speculated that there might be a communications lag because the office is new.

Recently, Marks found his way to the Identity Theft Resource Center Web site, which recommended people in his situation contact the Taxpayer Advocate office. He did so, and said that he spoke to a helpful caseworker who took an interest in his problem and offered to help. He's optimistic, but he's still waiting for his refund.

"My faith in the federal government has been kicked down yet another notch," he said.

Lamishaw, meanwhile, urged victims like Marks to contact the IRS' toll-free ID theft number, even if they've already tried unsuccessfully to resolve the problem earlier.

"We do recommend people give this office a try, even if they were frustrated in the past," she said.


There are many ways an identity thief can get a hold of the necessary information and file a tax return in someone else's name. Linda Foley, director of the Identity Theft Resource Center, says some imposters are illegal immigrants using someone's Social Security number in order to get work permission. But there are many other variations on the crime.

"People who don't want criminal histories known, have bad credit reports or may be hiding under another SSN to avoid child support payments," she said. "We get a number of cases like this."

Early detection of tax return ID theft is important to quickly resolving the problem. Watch for any suspicious signs -- the rejection of a return, a surprise bill from the IRS for unpaid taxes, a lengthy delay in refund payment, or even unexpected entries in your annual Social Security earnings statement.

The IRS ID theft fact page is very useful.

At the first sign of a problem, call the IRS Identity Protection Specialized Unit at 1-800-908-4490.

You don't have to wait for a tax problem to warn the IRS that you've been a victim of ID theft, however. If a criminal is using your SSN to open credit accounts or compromise your identity in other ways, consider calling the IRS hotline and asking the agency to flag your account. Lamishaw, the IRS spokeswoman, said that won't prevent a citizen from e-filing or delay refunds, it will just instruct the agency to take a bit more care before mailing out refund checks.

And every taxpayer should know about the National Taxpayers Advocate Service. Dealing with the IRS can be challenging. The advocate's service is designed to help taxpayers who feel they've hit a brick wall in dealing with the agency. Last year, the advocate's office had 275,000 open cases. There are offices in every state in the nation. Click here to find the one for your state.