As the income tax deadline looms Monday, the problem of tax-related identity theft continues to grow, and Florida leads the nation in the crime.
Last week Florida Sen. Bill Nelson filed an improved version of a previous bill to help fraud victims. Among other things, it would require the IRS to get victims’ refunds back to them more quickly. There’s currently a backlog of 300,000 cases and an average wait time of more than 180 days.
Some taxpayers who were victimized last year are in the nightmarish situation of having the same thing happen this tax season. Identity theft is increasing at the workplace, hospitals and doctors’ offices. Recently, almost 15,000 patients of University of Florida’s Shands hospital were notified after a man was found with 1,600 personal identities on a computer-generated appointment information sheet.
“We cannot allow victims of ID theft and tax fraud to be victimized again by a system encumbered by red tape,” Nelson said in a recent statement.
The criminals steal identities then file a tax return using the victim’s Social Security number to obtain a fraudulent refund. When the taxpayer files a return, the Internal Revenue Service discovers that someone already has filed with that Social Security number. The taxpayer has to fill out an IRS identity theft affidavit, file a report with local law enforcement and notify the Federal Trade Commission.
U.S. taxpayers stand to lose $21 billion in income tax refunds to identity thieves over the next five years, according to a July Treasury report. A Treasury investigation found that the IRS issued $5.2 billion in refunds for 1.5 million fraudulent 2010 returns. In addition, the IRS detected and prevented $6.5 billion in fraudulent refunds.
Here’s a look at some of the provisions in the proposed Identity Theft and Tax Fraud Prevention Act of 2013:
— A requirement that identity theft victims receive their refunds within 90 days.
— The establishment of a single point of contact with the IRS for victims who say they are frustrated by having to deal with multiple IRS employees.
— An expansion of the personal identification (PIN) program in which victims would receive a PIN sooner.
— An electronic filing opt-out which would allow a victim to direct the IRS not to process tax returns submitted electronically by anyone purporting to be the taxpayer.
— A requirement that regulators issue new rules surrounding the use of anonymous reloadable prepaid debt cards. Fraudsters have refunds routed to the cards. Account numbers associated with the cards would be distinguishable from those of other types of accounts where the customer is identifiable.
— A limit on the number of refunds in a year that can be sent to the same individual direct deposit account or mailing address.
— Restricted access to the Social Security Death Master File.
— The phasing out of Social Security numbers on Medicare identification cards.
— More privacy protection for Social Security numbers.
— Tougher penalties for ID theft-related tax fraud.
The bill also calls for improved detection of fraudulent tax returns through information-matching at the time a return is filed.
Stephen Coggeshall, chief technology officer for ID Analytics, a consumer notification service based in San Diego, said the company is in talks with the IRS about providing a system that would instantly notify a taxpayer that someone filed a tax return using his Social Security number.
“When they file taxes, they would get an alert that said, ‘Someone just filed with your social. Was that you?’ The IRS is working very hard on the problem. They tend to work on the back end to correct it as opposed to preventing it,” Coggeshall said.
Coggeshall said that ID Analytics, which was acquired a year ago by Tempe, Ariz.-based LifeLock, works with banks and cell phone companies to ferret out fraudulent credit applications. It scores a half million consumer applications a day. The score indicates the probability that the application is fraudulent, and the financial agency can chose to reject or accept it. About two-thirds of fraudulent applications are stopped.
“The things we key in on are unusual usage of information such as the Social Security number, name, date of birth, address and phone number. We might see other people using names on that number or a whole bunch of applications coming out of that street address or that the name and date of birth do not go together,” Coggeshall said.
“We protect people behind the scenes without them even knowing it. We score those applications. The banks are paying us money to prevent fraud,” he said. “We work with eight of the the top 10 credit card issuers (banks) and with six out of the top 10 financial services companies, mortgage companies and the top four wireless carriers.”
A second aspect of the business involves sending alerts to consumers when someone tries to use their Social Security number.
Coggeshall said subscribing to LifeLock or another ID theft protection service is better than simply signing up for alerts from the credit bureaus because the notification is immediate or in “real time.” It may take the credit bureaus days or weeks to process information, which they receive in batches, he said.
When people subscribe to a service that is a partner of ID Analytics, a text message will be sent to them when an account is opened, whether it’s at AT&T, Nordstrom, or some other place.
“If it is you, you ignore it. If not, you can press a button and shut it down. That is where we were of interest to Lifelock,” Coggeshall said.
Identity-theft related complaints, 2012
Nine of the top 10 cities in the nation hardest hit by this crime are in Florida.
The Miami-Dade, Broward and Palm Beach counties metropolitan area is first.
For every 100,000 residents, 645 residents were victims and 35,914 complaints were received.
Naples-Maarco Island ranked second at 397 victims per 100,000 residents.
Tampa ranked third at 352 victims per 100,000 residents.
Source: Federal Trade Commission