'At least you still have your identity'.

• Author: Karl, Edward S.
• Position: Tax-related identity theft

WHEN SOMETHING GOES WRONG, PEOPLE euphemistically say, "At least you have your health." The AICPA wants to change that to: "At least you have your identity."

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The Institute is hearing from more and more members with tax-related identity theft stories that make this author's toes curl. One member recently told about how his client sent him an IRS notice the client had received during the third week of April. The notice indicated the amount of the refund shown on the client's Form 1040 was being adjusted upward because the return showed only the amount of W-2 withholding but failed to claim the quarterly estimated tax payments that had been made. Normally, that would be great news and government efficiency at its best; however, there was a problem. The CPA had actually filed an extension for the client on April 15. And no, the client had not filed the return, so the reader should know where this story is going.

Tax-related identity theft has become a huge and growing problem in this country. The IRS Advisory Council (IRSAC) serves as an advisory body to the IRS commissioner. IRSAC's purpose is to provide an organized public forum for IRS officials and representatives of the public to discuss relevant tax administration issues. In its 2012 Public Report (available at tinyurl.com/p345m2b), IRSAC indicated that from 2008 through the middle of 2012, the IRS had identified more than 600,000 taxpayers who had been affected by identity theft. With respect to these taxpayers, during 2011 the IRS prevented $1.4 billion in refunds from being erroneously sent to identity thieves. Through mid-April 2012, the IRS had stopped more than 325,000 questionable returns with $1.75 billion in claimed refunds by using filters specifically targeting refund fraud.

Despite the IRS's successes in combating identity theft, it is hard to overemphasize the staggering dimensions of the tax identity theft problem. According to the National Taxpayer Advocate's 2012 Annual Report to Congress (available at tinyurl.com/bjutmme), identity theft cases handled by the IRS grew exponentially in fiscal year 2012 over the prior year. The IRS's Identity Protection Specialized Unit (IPSU) received about 450,000 cases in FY 2012, a 78% increase over FY 2011. Moreover, the report revealed that identity theft cases amounted to 25% of all cases the Taxpayer Advocate Service received in FY 2012.

Indeed, IRSAC's first recommendation in its 2012 report said,

The IRS must...