While I’ve not yet been the victim of identity theft, the possibility—and the consequences—are beginning to loom.

Just the advertising for systems that will insulate one from identity theft, along with the stories of those who have suffered, are enough to grab your attention. And if you’re a tax preparer, chances are that one or more of your clients has been a victim. And while identity theft can occur in other areas, it can cause particular trouble when it’s done in connection with taxes.

The Treasury Inspector General for Tax Administration says that over 640,000 taxpayers were affected by identity theft in calendar year 2011, up from 270,500 in calendar year 2010. These cases threaten to overwhelm IRS resources, according to TIGTA, which noted that taxpayers whose identities are stolen receive confusing and conflicting instructions from the IRS and delays of sometimes longer than a year to resolve their tax problems.

“We had a number of cases that we couldn’t e-file because the Social Security Number had already been filed on a return,” said Linda de Marlor, president of Rockville, Md.-based Tax-Masters. (She’s also the “Tax Lady” on C-Span).

“We are working now on the case of a widow whose husband’s Social Security number was stolen a week after he died,” she said. “The IRS has told us that she must now do paper filing for the next three years. It will take many months to sort out her federal and state refunds since the perpetrator has already filed false refund requests.”

De Marlor noted that there are Web sites on which one can access Social Security numbers of deceased persons. “I have done it in cases of helping children file for deceased parents,” she said. “It’s convenient, but it’s also dangerous since it’s available to the general public.”
In a report issued last month, TIGTA noted that identity theft was the number one consumer complaint last year to the Federal Trade Commission, and the most common form of reported identity theft involved government documents. The report noted that the IRS does not work identity theft cases in a timely manner and can take more than a year to resolve them. This should change, since the IRS agreed with a number of TIGTA recommendations and has made solving the problem a priority.

This is important, because you only find out about your taxes when it’s time to file your return. But if your refund has been stolen, other things could be happening as well. Given the doubling of tax-related identity theft from 2010 to 2011, it’s likely that one of us or someone close to us will soon be a victim. So don’t just trash your mail, shred it first. And consider signing up for one of the protection services. If the trend continues, it might also be a good investment to purchase some of their stock.

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