As long as you pay taxes you are a potential victim of identity theft. This is because tax identity theft is on the rise. According to the findings of the General Accountability Office, $5.8 billion was paid out to identity thieves in the form of cash refunds in 2013. This figure could be potentially higher given the fact that it is hard to identify the real extent of identity theft and establish how much money was really paid out as refunds to con-men. But how is this even possible? The IRS states that it takes an average of 180 days for an individual to make a claim against identity theft. But in reality it takes 278 days to resolve any issues that you may have in case your tax refund is sent to an identity thief.
The Treasury Inspector General for Tax Administration (TIGTA) issued an alert to taxpayers, warning them to be on the lookout for scammers who are posing as IRS officials. These scammers, who pretend to be working for the IRS, call their victims and threaten them with huge fines or jail term if they do not pay a certain amount of money. Out of the 896,000 people who reported the issue to the TIGTA after being called by the scammers, 5,000 of them had paid out up to $ 28.5 million to the scammers in 2013.
Congress responded to this issue by passing a legislation that required the IRS to hire private companies to collect money on their behalf. These agencies go after taxpayers who have defaulted in making payments to the IRS. But was this the right move by Congress? Probably not, given the fact that the IRS has for a long time had campaigns telling people that the IRS does not initiate contact with tax payers and anyone who does this is most likely a scammer. The collection agencies will be calling people so as to collect overdue taxes. The big challenge is that identity thieves will now take advantage of this to call people and pretend to be individuals who have been hired by the IRS to collect overdue taxes on their behalf.
The IRS was totally against the passing of this law. This is because this strategy has been tried twice before and it failed miserably. The National Taxpayer Advocate, Nina Olson, stated that the IRS has generally been able to collect a lot more money when they collect taxes on their own than when they hire collection agencies to collect money on their behalf. Also, the IRS spends a lot less in the collection process when the IRS does the collection on its own rather than when they use agencies. This generally means that the agencies collect a lot less money at a much higher cost than the IRS does.
It gets even worse. The IRS has overlooked a simple step that would have helped to eradicate identity theft to a large extent when it comes to tax refunds. Usually, employers are required to file their employees W-2s forms on February 29th if they are submitting the forms manually or by March 31st if they are submitting the forms electronically. These forms should be filed with the Social Security Administration (SSA). The SSA will then file the forms with the IRS by July. This generally means that by the time the IRS is getting the W-2 forms sent by employers and comparing them with the forms that were sent in by individuals, they would have already sent out cash refunds one month before. This gives identity thieves a huge loophole to exploit.
Identity thieves usually fill out a W-2 form using a victim's social security number. This form usually shows that a huge refund is due. This refund is sent to the identity thief. By the time the person who is affected realizes what has happened, it is usually months after the money has already been sent out. This makes it harder to recover the cash or to catch the thief. If employers were required to send the W-2 forms directly to the IRS rather than the SSA, then this problem can be greatly reduced.
In light of this, Congress decided to make major changes in the coming tax season. According to the omnibus spending bill signed into law by President Obama on 19th December 2015, the IRS Commissioner, John Koskine, states that employers will be required to provided the SSA with their employee's information by the end of January. However, the IRS still has to wait for the SSA to forward them this information. So this means that they have essentially not eliminated the problem since it will take time for the IRS to get the information.
Given that the IRS prides itself in being able to give cash refunds within 21 days when someone files for a tax income refund, this is a huge problem. A huge chunk of the 90% refunds that will be given will probably end up in the hands of identity thieves, who will have filed fake W-2 forms.
So what steps can you take as a tax payer to prevent this from happening to you? Well, the solution lies in your hands. The best thing to do would be to file your W-2 form as early as you can. This will prevent someone else from filing a tax return using your social security number before you do. We also recommend checking out our article 10 Easy Ways to Avoid Identity Theft for more tips to keep your identity safe.