Allison Linn

For identity theft victims, paying taxes is a nightmare

March 21, 2012 at 7:22 AM ET

After Meghan Bach learned last year that her husband’s identity had been stolen to collect a fake tax refund, she spent perhaps 200 hours working to resolve the issue with the IRS and other agencies.

She thought she had been successful until the family returned home from a vacation this month to find that her husband’s identity had been stolen again.

 “It’s just appalling,” she said.

The IRS has acknowledged that identity theft tax fraud –- stealing someone’s Social Security number to file a fake tax return and collect a bogus refund –- is one of the most complex issues it deals with. Victims describe hours of phone calls, piles of correspondence and long periods of silence in which they aren’t sure whether their problems are being resolved or not.

The tedious process has left some victims worried about what will happen when they file this year’s tax returns.

“Of course I’m nervous,” said Dr. Vera Rosado, 33, who found out last year she was a victim and still has not been able to get it resolved with the IRS.

Rosado, a physician studying infectious diseases in Indianapolis, was recently told to file her fraud affidavit for a second time and her 2010 return for a third time after previous filings was lost. She said the IRS has told her it could take another few months to get the new paperwork processed.

She is waiting to get an approximately $3,000 refund check from last year’s return, which she plans to use toward medical board exams.

The IRS estimates 404,000 people were victims of identity theft tax fraud from mid-2009 to the end of 2011, and officials say the problem is growing.

The agency recently set up a specialized unit to just to deal with identity theft tax fraud, and it is expanding its screening process aimed at flagging this type of fraud. The issue also has attracted the attention of the some U.S. Senators. On Tuesday, a finance subcommittee held a hearing on the matter.

The IRS said it could not comment on specific cases such as Rosado’s and Bach’s because of privacy laws.

Experts say the IRS is working hard to root out identity theft tax fraud in the approximately 140 million tax returns that come in each year. But some believe the problem will get worse before it gets better because it will take time to train staff members to root out and deal with such issues.

“For the next four to five years it’s going to be a learning curve for everybody across the country,” said Jay Foley, a partner with ID Theft Info Source.

Foley said one issue is that IRS employees who aren’t part of the identity theft unit may not know how to handle such complaints. That’s why they might audit tax forms instead of use them in an investigation, for example, or not file paperwork correctly.

He recommends that anyone who is a victim of such fraud work directly with the identity theft unit and also contact the Taxpayer Advocate, an independent agency charged with assistant taxpayers who are having problems.

Foley said the bad news is that there is little people can do to shield themselves from such fraud attempts.

“There’s absolutely nothing that can be done at this point in time that’s going to give you a guarantee of safety,” he said.

Bach, a real estate agent who lives in San Diego, found out her husband had been a victim of identity theft tax fraud in March 2011, when she tried to file their taxes and learned that someone had already filed a return using her husband’s name and Social Security number.

Over the next year, she said she spent several hours each week working with the IRS and other government agencies to get the fraud resolved on behalf of her husband, a military doctor.

At one point, she sent the IRS summaries of her past 10 years of tax returns in order to prove that she and her husband were the true taxpayers. Instead, she said, the IRS audited one of those returns and presented her with a bill for nearly $900.

She paid that bill, then successfully contested a later IRS attempt to audit another past return she had provided to prove her family’s identity.

Eleven months later, the family finally got its refund for the 2010 return and she figured the issue had been resolved. But a few weeks ago, they returned from a Disneyland vacation to find letters from the IRS that had been addressed to her husband had instead been sent to an address down the street that had recently been used as a rental. The mail had been returned to the post office and redelivered to Bach.

One letter, sent to the other address, was informing the family that they had once again been victims of tax fraud for the 2011 tax year. The second letter said that a refund of more than $10,000 was being applied to an existing balance of more than $12,000 that the letter said the family owed the IRS.

Bach said the family had not yet filed their 2011 taxes and was not scheduled to receive a $10,000 refund for the year. They also did not owe the IRS any money – in fact, after their fraud had been resolved, she said the IRS had sent them a refund for 2010 with interest.

Bach surmises that the fraud might have occurred at the address where the IRS correspondence was sent. She doesn’t know if the IRS sent any other correspondence to that address.

Bach and her husband immediately went to the local IRS office to get the address issue corrected. In addition, she said she has left multiple messages with the IRS identity theft case manager she has been working with but has not heard back. She plans to file her real 2011 tax return this week.

Bailey Yahraus, 30, found out four years ago that her husband and young children’s Social Security numbers had been used to file a fraudulent return. The couple got it resolved, and for the next couple years they used a tax filing service to file their returns with no problems.

This year, Yahraus decided to file her return herself using an online tax service. That’s when she found out that her children’s Social Security numbers had already been used by someone else claiming them as dependents.

Yahraus, who lives in Montpelier, Ohio, has been trying to figure out how she can keep the Social Security numbers from being used fraudulently again. She’s worried about what effect the ID theft might have on her kids when they become adults.

But after a rough few years in which both she and her husband lost their jobs and got new ones, she hopes to shield them for now.

“They’re 8- and 9-year-old boys,” she said. “They’re worried about baseball, basketball (and) football.”

Related:

IRS faces surge in identity theft tax fraud 

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