Tax Refunds Delayed By Rising Identity Theft


Mike Bucalo Jr., 71, has never lived in Miami. He's spent the past 25 years in Akron, Ohio. Yet according to his 2011 tax return filed in January, he resided in Florida last year.

Using a fake Florida address and Bucalo's stolen Social Security number, scammers conned the Internal Revenue Service into paying them Bucalo's tax refund earlier this year.

The retired pipe-fitter learned this the hard way. On March 6, his legitimate tax return was rejected by TurboTax, which said his Social Security number had already been used.

Not only did that mean Bucalo had to complete a mountain of paperwork and file a police report, but it also means that Bucalo won't get the tax refund he is rightfully due -- about $900 -- for another year.

"It's my money. I need a new roof," he said in a phone interview. "It's unnerving knowing that somebody is taking a piece of something that belongs to me."

Bucalo is far from alone. Identity thieves are increasingly filing false tax returns to get their hands on refund money. It's not only costing the government billions in stolen refund money -- it's slowing down legitimate returns for others.

Over the next few days, as one in five taxpayers file their federal returns at the last minute to meet the April 17 deadline, many more could discover, like Bucalo, that their information has already been used -- and it could be months before a refund is issued.

The Internal Revenue Service, tax preparers and online security experts confirmed that tax refund fraud is becoming a bigger problem.

The IRS has not released any numbers related to fraudulent returns for the current tax season, and that makes it hard to pinpoint the amount of scams related to tax refunds this year.

But last year, the IRS saw a massive jump in such scams over 2010. It stopped 262,000 fake returns and $1.4 billion in refunds because of identity theft in 2011, compared to fewer than 50,000 falsified returns and $247 million dollars in 2010.

"Our filters are stronger but it's also a growing problem," a spokeswoman from the IRS told The Huffington Post.

Jackson Hewitt Tax Service's Mark Steber said in an email that his company, which prepared 2.6 million tax returns in 2011, has seen an increase in fraudulent tax returns so far in 2012. The types of fraud range from sophisticated, in which scammers prepare falsified W-2 wage statements, to simple, such as when taxpayers simply claim someone else's dependents, Steber said.

Identity theft linked to tax return fraud is on the rise as well. Nearly 25 percent of the people who filed a complaint about identity theft to the Federal Trade Commission in 2011 said it was related to taxes or wages. That number has nearly doubled since 2008, when only 12.3 percent of identity theft complaints were related to taxes or wage theft. The FTC received nearly 280,000 complaints about identity theft in 2011 -- an increase of 10 percent over the previous year.

Bucalo says his personal information was compromised after his wallet was stolen in 2009, but online security experts say computer malware, unsecured wireless networks and other data breaches have made Social Security numbers as insecure as ever.

Fake tax returns are especially juicy scores for scammers because they are easy to manipulate. All a scammer needs is someone's name and Social Security number -- and a new address and bank account number. In Bucalo's case, the scammers opened and closed the bank account where the fake refund was deposited in five days.

"The IRS currently is not set up to authenticate tax returns or W-2 forms," said Todd Davis, the CEO of online security company LifeLock. "As a result, thieves have been able to get fraudulent refunds automatically deposited to prepaid credit cards in less than two weeks."

People who have their identity stolen must go through months of paperwork with the IRS to unwind the crime. To file his federal taxes properly, Bucalo had to send in a paper tax return, along with photocopies of his Social Security card, his birth certificate, a utility bill and passport. He also had to file a crime report with his local police department.

The rise of fraudulent tax refunds is not just affecting those who have had their Social Security numbers compromised -- it's also slowing down returns for everyone else. This year, TurboTax customers have complained that their refunds have been slow to arrive on their prepaid cards. A company spokeswoman told the The Huffington Post that additional security measures taken to prevent fraud are slowing down the refunds.

A bill introduced last fall by Sens. Bill Nelson (D-Fla.) and Dick Durbin (D-Ill.), the Identity Theft and Tax Fraud Prevention Act, would increase the penalties for tax fraud through identity theft and give fraud victims a unique PIN number to include on their return. It would also provide the IRS with more money for tax fraud prevention.

For now, there's one way to reduce the chance of falling victim to fraud -- and that's filing your tax returns well before the deadline, said Jamie May, chief investigator with AllClear ID, a security company that specializes in identity theft.

"The best piece of advice is to file early," she said, "but that ship has sailed,"

Before You Go