Name and SSN: All a Thief Needs for Tax Fraud

in Market Commentary by

Meeting the April 17 income tax deadline might be the least of your worries. In recent years, the IRS has seen a significant increase in the number of fraud cases involving identity theft, according to Steven Miller, IRS deputy commissioner for services and enforcement.

Tax fraud through identity theft can prevent an innocent taxpayer from getting a refund and may cause the IRS to take “adverse enforcement” against him for not filing properly, Miller said.

[Related article: The New Breed of Phishing Scams: It’s Complicated]

Jack Baldwin*, a founder and former CEO of a company listed on the New York Stock Exchange, learned about it the hard way.

Baldwin’s accountant filed his return electronically before the October 2011 extension deadline and was pleased to report that Baldwin had a small refund coming, which would be deposited in his account no later than Dec. 20, 2011. “The busy holidays came and went, and I gave no further thought to the matter,” Baldwin said.

A few weeks later, Baldwin’s accountant went searching for the missing refund and, after speaking to an IRS representative, found that the check would be delayed indefinitely. Someone already had filed a tax return using Baldwin’s name and Social Security number, but with a different address. For that return, a refund had already been issued.

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After several conversations with what Baldwin said were very cooperative and helpful IRS agents, he discovered that the offender had filed a tax return in his name using a forged W-2 form from Wal-Mart. The refund had been issued electronically. Apparently, this is a common tactic of identity theft tax fraudsters: Create a fake W-2 from a large corporation, such as Wal-Mart, where the bookkeepers are unlikely to match it up with those issued by the company before the tax deadline.

Baldwin then was required to fill out IRS form 14039, an “Identity Theft Affidavit,” to place a fraud alert on his files with all three credit bureaus, and to file a police report. Also, he was told it would be at least 90 days before anything would be determined about the case since the IRS was handling 200,000 similar cases of identity theft.

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“When I thought about it, it became clear to me that, had I not been due a refund, it was quite possible that the thief’s clever scheme would have gone unnoticed,” Baldwin said.

Until he hears back from the IRS, Baldwin is in the dark.

One lesson he has learned: Addresses don’t mean anything. All a thief needs is your name and Social Security number.

Protect yourself against tax fraud with these tips.

* The victim’s name has been changed to protect his privacy.

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