Identity theft and taxes

Identity theft is always scary. But lately it has become more complicated and more difficult to resolve. And that’s especially true when it comes to income taxes.

Gone are the days when you prevented identity theft by covering your PIN while you withdrew cash from the ATM. A recent study from financial advisory firm Javelin says that in 2020, total identity fraud losses were likely more than $56 billion. And the vast majority of those losses came from scams where the victims unknowingly or carelessly gave their information to the scam artists.

While earlier identity fraud was often the fault of hacks into large companies, the latest round appears to have been driven by the increased use of online purchasing and payment tools during the pandemic.

In fact, the Javelin report notes that many people in retrospect can point to the exact moment when they unwittingly gave fraudsters access to their account by responding to an email, text or telephone call requesting their information.

The fraudulent approaches have gotten more sophisticated in using the logos and type styles of major companies (or government agencies) in the emails. They also may include a small bit of personal information about your accounts, which lulls you into revealing more.

According to a new commentary on Axios, as much as $400 billion — or nearly half of all unemployment benefits paid out — may have been lost to fraud. The CEO of LexisNexis Risk Solutions estimates that at least 70% of the money stolen by impostors ultimately left the country, much of it ending up in the hands of criminal syndicates in China, Nigeria, Russia and elsewhere.

Unemployment fraud spiraled because the states simply weren’t ready to securely distribute such massive amounts of unemployment benefits — especially to the self-employed whose previous income and eligibility was difficult to verify.

But that was last year’s big story. The latest twist is the impact on people who recently filed their tax returns only to find that fraudsters had already used their Social Security number to quickly file a return requesting a refund. By the time the real return is filed, the refund is gone. And the IRS is asking you to go through the complicated process of verifying your information.

Typically, the ugly process of identity verification starts when the taxpayer receives a 5071C letter, 5747C letter, 6331C letter or

5447C letter. The letter directs you to register and verify your identity. The catch is that you must call the IRS. Most of this cannot be done using agency’s website.

And, of course, no one answers when you call the IRS. That’s what happened to one of my readers, an elderly widow who is still trying to reach them. Even worse, she only filed to claim her stimulus refund. She has almost none of the required documents needed to prove her identity.

The IRS needs to see (according to this list from their website):

Your personal account number from a credit card, mortgage, student loan, home equity loan or home equity line of credit, or car loan

A mobile phone associated with your name Your 5071C letter, 5747C letter, 5447C letter or 6331C letter

The income tax return (form 1040,1040PR, 1040-NR, 1040-SR, etc.) for the year shown on the letter

You must also have your mailing address from your previous year’s tax return.

Well, IRS, sorry to inform you that this elderly widow has none of the above — no credit card, no mortgage, no student loan, no mobile phone, no home equity loan (she resides in senior living) and no car, so no car loan. And she didn’t file a tax return last year because of low income; she only did so this year to get her stimulus payment.

This is an impossible situation, agrees an IRS spokesperson, acknowledging that agency staff is overworked and working overtime. He says the best solution is to contact the IRS Taxpayer Advocate at 877-777-4778.

Taxpayer identity theft is a sad long-term effect of COVID-19, made especially difficult because so many of the victims are elderly people who never knew their information was used to scam unemployment benefits. And that’s The Savage Truth.