GAO: Taxpayer identity theft on the rise

The stealing of taxpayer identities has risen sharply in recent years, the Government Accountability Office has found.

James White, director of strategic issues for the GAO, told the House Oversight subcommittee on Government Organization Thursday that there were close to 250,000 incidents of taxpayers identity theft in 2010, up from just under 52,000 in 2008.

While that number is just a sliver of the nation’s taxpayers, GAO also found that the federal government rarely pushes for criminal investigations of identity thieves, and that the IRS’s efforts in combating the problem are hamstrung by privacy laws.

“To find out that even a federal agency cannot protect against identity theft, frankly, is beyond disheartening,” Rep. Mario Diaz-Balart (R-Fla.), a member of the House Appropriations subcommittee that has jurisdiction over the IRS, said at the hearing. “I think we can all agree that the IRS has been slow — frankly, very slow — to respond.” 

For his part, Rep. Edolphus Towns (D-N.Y.), the ranking member on the subcommittee, signaled that the government might need to devote more resources to dealing with identity theft.

Taxpayers can find their identities wrested away in at least a couple of ways. In some cases, a thief will use a taxpayer’s information to file for a fraudulent refund, which the IRS learns when the legitimate taxpayer sends in their return.

At other times, a job applicant will use another taxpayer’s identity to secure employment, causing the real taxpayer issues when the employer tells the IRS about that income.

According to the GAO, the IRS has taken steps to tamp down employment and refund fraud, including using a screening process that helped find roughly 145,00 fraudulent returns filed this year.

But the IRS’s criminal investigations division only started fewer than 5,000 investigations of all sorts in the 2010 fiscal year, well short of the number of identity-theft cases. The Justice Department makes the final call over whether an identity-theft case is prosecuted as well.

And the IRS is limited in what it can tell a taxpayer after their identity has been used by someone else. For instance, the agency cannot disclose who took the taxpayer’s identity and what employer might have employed that person.

Doug Shulman, the IRS commissioner, said in his prepared testimony for Thursday’s hearing that the agency has kept more than $900 million in fraudulent refunds from being sent to identity thieves since 2009, but also that he understands the frustration of taxpayers who have seen their identities stolen. 

“I want to emphasize that, by the time we detect and stop a perpetrator from using someone else’s personal information for his own benefit, the taxpayer-victim’s personal data had already been compromised outside the tax filing process,” Shulman said. “Thus, the IRS was not the cause of the identity theft.”

But three taxpayers who testified Thursday on what happened after their identities were taken all said they had serious issues with how the IRS dealt with their cases. 

Sharon Hawa of the Bronx, N.Y., said in her prepared testimony that she has now been victimized both in 2009 and 2011 — and that the IRS had seemed less equipped to deal with the problem the second time around.

“They continue to treat me as if I am the one to blame — adding even more stress to the situation,” Hawa said. “There is no clear process in place to prevent this from happening or to provide identity theft victims with the necessary steps they must take to receive their refunds and further protect their identity.”