What is Tax Identity Theft?

Tax identity theft is the use of someone else’s personal information to file a fraudulent tax return or claim tax benefits. This fraud is particularly pernicious because the legitimate taxpayer may have no way of knowing that fraud has been committed. Often, the fraud will only be detected when a taxpayer receives a notice from the Internal Revenue Service (IRS) or state tax authorities of a problem with her return.

In 2014, tax identity theft was the single biggest type of identity theft complaints to the Federal Trade Commission. Conservative estimates put the cost of this fraud to the nation’s taxpayers at $5.2 billion annually.

Here’s how tax identity theft works: Most workers receive their W-2 forms from their employers by the end of January. Since many consumers wait until April to file, a scammer who has access to compromised personal information (such as a social security number, full name, and street address) can take advantage of the delay to file in someone else’s name. Some tax ID thieves even specialize in using children’s identities to fraudulently claim them as dependents. Since the IRS tries to process refunds in as little as three (3) weeks, the scammers receive their fraudulent refunds in the mail or electronically and quickly turn it into untraceable cash. The legitimate taxpayer often only finds out they’ve been a victim when the IRS refuses to process the real return because - according to its records - they’ve already filed a return.