How Identity Thieves Snatch Billions in Phony Tax
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How Identity Thieves Snatch Billions in Phony Tax Refunds
FINKSBURG, MD — The nursery in Terry and Stephanie McClung's house in suburban Baltimore seems frozen in time. A display case in the hallway is filled with memories of their daughter, Kaitlyn, who died in May, 2009, of sudden infant death syndrome (SIDS) at the age of five months.
"She was the best little girl anyone could ask for," Stephanie McClung said. "She had the fattest little cheeks, and she had the best laugh."
"We had the ideal American family, a boy, a girl and a dog and we were happy," Terry said.
"And that life ended the day she died," Stephanie said.
Alongside the pain the McClungs still feel nearly four years after the death of their daughter is a feeling of bewilderment and even violation over what happened next.
They filed their 2008 income tax return, claiming Kaitlyn as a dependent. But the IRS rejected the return.
"The dependent's Social Security number cannot be used more than once in a tax return. It also cannot appear in more than one tax return," read the automated response from TurboTax.
The McClungs instantly knew what had happened. ( Read More : Online Tax Filing a Hit With Taxpayers – and Thieves )
Soon after Kaitlyn's death, they had joined a SIDS support group. Word began circulating in the group about a growing scam: identity thieves using the Social Security numbers of dead babies to file false tax returns and claim refunds.
"I was floored. That's the lowest of the low," Terry recalled. "I said let's hurry up and do our taxes before they get to Kaitlyn."
But it was too late.
"It's salt in the wounds, just for someone to take advantage of her and try to use her number to make a buck," Terry said. "We felt violated."
"It was the last time that we had to claim her as our own and somebody robbed us of that as well," Stephanie added.
And their nightmare was just beginning, because what followed for the McClungs was a trip down a bureaucratic rabbit hole.
"I called the IRS, they said to call Social Security because it was about her Social Security," Terry said. "So I called the Social Security department, they wanted me to call the IRS."
Stolen identity tax refund fraud, virtually unheard of just a few years ago, has become a massive problem. ( Read More : Tax Scam: IRS Pays Out Billions in Fraudulent Refunds )
In 2008, the IRS said it had identified 47,730 incidents. By 2011, the last full year of data available, that number had ballooned to 242,142. Through the first nine months of last year, 641,690 incidents had been reported.
The Treasury Inspector General for Tax Administration (TIGTA) estimated in July that the problem has already cost $5.2 billion, and an estimated $21 billion in potentially fraudulent refunds due to identity theft could be issued in the next five years.
And for victims like the McClungs, TIGTA found the IRS's customer service woefully inadequate.
"Identity theft cases are not worked timely and can take more than a year to resolve," TIGTA found in a report issued in May . "Communication between IRS and victims are limited and confusing, and victims are asked multiple times to substantiate their identity."
In an interview, Treasury Inspector General for Tax Administration J. Russell George said the problem is a combination of limited resources at the IRS and a numbing bureaucracy that includes customer service telephone agents who simply did not follow up on taxpayer complaints, leaving the taxpayer back at square one when he calls back.
"You'd have people who didn't initially respond to that taxpayer complaint, and would essentially start the process all over again," George said. "As you can imagine if you're calling a credit card company how frustrating that could be. Imagine it with the IRS."
George said the bureaucracy works to the benefit of identity thieves.
"In effect it's a race to get your tax form filed. Most tax thieves know that if they file first they are perceived to be the legitimate taxpayer," George said.
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