IRS identity theft keeps innocent taxpayers waiting months to receive their refund

Keeping tabs on your identity

CLEVELAND - The IRS said there's been a five fold increase in identity theft from 2008 to 2010. While the IRS said the breach is not happening at their offices, they are stuck finding a solution to this costly problem that leaves legitimate taxpayers waiting months for their refund check.

Despite a year of hard work, Sarah Madunicky's financial future is up in the air.

"It's very frustrating because you work for something and it's owed to you and someone else can go right under there and take it from you," Madunicky said.

The IRS rejected Madunicky's tax return this year. She said the IRS told her someone else already used her social security number to file a return.

An IRS Tax Return Transcript shows a return with Madunicky's social security number using a Cleveland Heights, Ohio, mailing address, but Madunicky lives in a different city.

The Cleveland Heights home used in the fraudulent filing sold this spring, and the new owners said they have nothing to do with this case.

There was another red flag on the return for Madunicky. The dependent listed on the return would have been born when Madunicky was just two years old.

"It doesn't really add up," Madunicky explained.

The return still went through. Five months later, Madunicky is still trying to get answers and her tax refund from the IRS.

"They are not very cooperative and not helping me with any of this,. Madunicky said.

IRS identity theft victims wait months for help

Madunicky is not alone. Testimony from three other identity theft victims at a Congressional subcommittee led the IRS Commissioner to issue an apology.

"We obviously need to do better," Commissioner Douglas Shulman said.

The IRS told the Government Accountability Office that it's difficult to screen every return for fraud, and said there are "trade-offs" if it adds more restrictive screening.

It's expected there would be delays in processing, and could overwhelm the IRS' capacity to issue refunds in a timely manner.

The GAO report also discussed additional screening mechanisms for known identity theft victims. Returns that fail screenings require a manual review and contact with your employer. The IRS said it feels even this type of screening for ID theft victims would pose delays and a burden for employers.

While improvements would help, the Ohio IRS spokeswoman, Jennifer Jenkins, told NewsChannel5 that the IRS stopped nearly 117,000 ID theft returns just this year. Those measures protected more than $582 million from ending up in the wrong hands.

IRS wants to use PIN system to reduce fraud

"I think the PIN is really the solution," Commissioner Shulman explained.

Taxpayers would need a six digit Identity Protection Personal Identification Number (PIN) to file a return.

It's only a pilot program used by 56,000 previous identity theft victims. During the pilot program, the taxpayers will get a new PIN each year for 3 years following ID theft.

"Anything would make it better, especially with a PIN that only certain people would have," Madunicky said.

Once someone else has your social it takes years to unravel the mess leaving Madunicky to continue to wonder how her social security number was stolen and when the thief will use it again.

"It's going to be something that haunts me," Madunicky said.

We called the IRS and Congresswoman Betty Sutton's office (D-Ohio, 13th District). Sutton's office said the IRS was just finishing the investigation and the check was immediately issued.

While the case is resolved, this may never go any farther. The IRS told the GAO a "small number of cases" lead to criminal investigations. Privacy laws prohibit them from sharing information with other government agencies and local investigators. So, protection is key.

Protecting yourself from ID theft

If you suspect IRS identity theft, call the IRS Identity Protection Specialized Unit at 1-800-908-4490.

Checking your credit report is the best way to keep tabs on your identity. " Annual Credit Report " is the official free site that allows you to check your report. There are three credit reporting agencies, and you can check each agency's report once a year for free. To keep tabs on your credit year round, check one report every four months.

If you notice anything unusual, call the credit reporting agency. The steps to dispute a record on  your report are contained in the back of the credit report.

Repairing your credit and identity can take a long time. The State of Ohio has a Passport program that makes it easier to prove you are who you say you are. Click here for more information and to obtain a Passport card if you are an identity theft victim: http://5.wews.com/DOS

The Federal Trade Commission outlines all the steps you can take to fight back once you're victimized.

It outlines how to place a fraud alert on your account.

You may also explore a credit freeze. This freezes your credit to reduce the damage. Nobody will be allowed to open another line of credit with your social without proving they are who they say they are. This will make it more difficult for you to get credit, but will reduce the damage to your identity. To obtain a freeze, call Experian , Equifax , and TransUnion .

Finally, don't give your social security number to anyone unless it's absolutely essential. Many companies ask for your social, but they don't really need it. Don't give it out to anyone unless it's absolutely necesary.

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