Most people today associate April 15 with filing their income tax returns. But a growing number of Americans are associating this process with becoming a victim of identity theft. The House has put forth an aggressive proposal to help Iowans fight back.
While many people think identity theft only happens when a person’s credit card information is stolen for a major retailer like Target and Home Depot. Income-tax related identity theft is becoming a major issue throughout the country.
What happens with income-tax related identity theft is that a criminal steals an individual’s personal information and uses it to file a fraudulent tax return. The fraud is often not discovered until the actual person goes to file their tax return and they are not paid their refund. Correcting this situation is not easy or cheap. The IRS reported in 2013 that the average amount of time for a victim of identity theft to get their income tax refund was 312 days.
For the fifth consecutive year, income-tax related identity theft was the leading identity theft complaint received by the Federal Trade Commission in 2014. And the problem is only growing.
In an email to University of Iowa employees, UI Public Security reported that states are seeing incidents of income tax-related identity theft rising between 50 and 3,700 percent this tax year. Why would UI Public Security put out a statement? Because nearly 400 employees of Iowa’s state universities have reported being a victim this year.
A number of states have taken steps to fight income tax-related identity theft. Indiana implemented an identity verification system in 2014, which has hired LexisNexis to use their database to verify the identities of tax filers. Those that have issues are sent a letter by the state, asking them to take a short online quiz to verify their identity. Once a tax filer has completed the survey, their return is processed.
The new process identified nearly 78,000 returns filed with stolen or manufactured identities, seeking refunds of over $88 million. The number of fraudulent returns amounted to 11 percent of the total number of returns filed in the state. In the previous year without the verification process, the Indiana Dept. of Revenue found just 1,500 cases.
Indiana is not alone is taking aggressive steps to fight identity theft via income tax filings. The state of New York has implemented its own verification system. In 2013, their Department of Taxation and Finance stopped 255,000 fraudulent or erroneous refunds that would have totaled $413 million. Through April of 2014, New York had already prevented the payout of $287 million in fraudulent refunds.
Ohio started verifying identities this year, after discovering that 58,000 fraudulent returns were filed in a six month period of 2014, claiming $257 million. During the same period in 2013, Ohio found just 10,000 fraudulent returns claiming just $8 million. And even the much maligned Internal Revenue Service has begun sending out letters to verify people’s identity this tax season.
House Study Bill 237 would have Iowa join these states in being proactive in verifying identities and preventing identity theft. The bill would require the Department of Revenue to establish a process to verify identities of those people filing Iowa income tax returns before Iowans start filing their income tax returns in 2016. The department would also implement procedures to prevent income tax returns from being filed via foreign internet service providers.
These provisions are just one part of the bill, which also implements identity verification systems for unemployment compensation claims and Medicaid. At a time when Iowans are under a growing threat of identity theft, it would be inexcusable for legislators and state agencies to not do everything to protect citizens from this devastating crime.