Is tax identity theft becoming an epidemic?

• Author: Weber, Mindy Tyson

Imagine a taxpayer who conscientiously makes all required estimated tax payments on time throughout the year, then prepares and files his Form 1040, U.S. Individual Income Tax Return, on April 14, expecting a refund of the overpayment shown on his return. Now, imagine the IRS has already processed a refund of those estimated payments and paid it to someone who used the taxpayer's name and Social Security number to file a return on March 1.

This scenario is all too familiar to taxpayers who have had their identities stolen. Identity theft represents one of the most stressful events a taxpayer can experience. The Treasury Inspector General for Tax Administration (TIGTA) reported that the IRS identified more than 1.1 million incidents of tax identity theft related to 2011 returns (see TIGTA Rep't Nos. 2012-40-050, 2012-42-080, and 2012-40-106, which examine IRS procedures for combating tax identity theft). Moreover, Beth Tucker, deputy commissioner for Operations Support, stated that for the first 10 months of 2012, the IRS protected, through enforcement efforts, close to $20 billion of revenue related to fraudulent refunds (see testimony of Beth Tucker to the House Committee on Oversight and Government Reform, Nov. 29, 2012).

Anyone can become a victim of identity theft. Personal information can be obtained by identity thieves through situations as ordinary as misplacing a wallet, smartphone, or other personal information. In other instances, identity theft results from sophisticated schemes perpetrated by experienced fraud artists. These scams can involve networks of pickpockets, widespread email phishing, thieves posing as someone needing information on the phone or via email, people going through victims' trash, or thieves accessing information through unsecure websites. Recently, patient medical records have become prime targets of identity thieves since the patients are often tracked by Social Security number. This development underscores the importance of dealing with qualified medical practitioners and not providing personal identifying information (such as a full Social Security number) except when absolutely required.

Though it takes many forms, tax identity theft is usually discovered in one of three ways:

* Income reported to the IRS but not earned by the taxpayer: In this situation a thief uses the victim's Social Security number to file a fraudulent Form W-2, Wage and Tax Statement, reporting wages and withholding taxes that were...