It's Almost Tax Day: Do You Know Where Your Identity Is?

Spending your tax refund before it arrives? You might want to rethink that plan -- and not just because it's fiscally imprudent. There is a growing chance that this tax season you'll learn for the first time that you were the victim of identity theft at some point during the last year.

A disturbing trend has surfaced: Many U.S. taxpayers are attempting to file their income tax forms only to find that they have already been filed by someone else purporting to be them.

During 2005 and 2006, the Federal Trade Commission received 92,570 taxpayer complaints related to employment-related and tax fraud identity theft, according to a recent report from the U.S. Treasury Department.

What's even more troubling is that identity theft related to tax administration rarely is prosecuted. In 2005, only 45 cases were recommended for prosecution that included a charge of identity theft. In 2006, only 55 cases included that charge.

Taxpayers shouldn't expect the IRS to play police, the report cautions: "IRS officials informed us that the IRS is unable to do more to stop continued use of someone's identity in employment-related identity theft cases. The IRS does not have sufficient enforcement resources to address most of these cases. Moreover, they believe that employment-related identity theft cases are not the responsibility of the IRS and that it would not be worthwhile to pursue employment-related identity theft cases for unreported tax liabilities because the taxes owed on most of these cases are not significant."

Maybe not to the IRS -- but the poor soul who is called on the carpet for an audit may feel differently.

That is just one effect of the growing problem of tax-related identity fraud, Bryan Ansley, CEO of Secure Identity Systems, told the E-Commerce Times.

"I think we will start to see more people being audited for this reason," he predicted. "Their social security numbers are reflecting more income than the legitimate owner of that number claimed in his or her taxes."

Though perhaps not the biggest factor, one driver of identity theft is illegal immigration, according to Ansley. Another is the acquisition of clean IDs for criminals.

This trend dovetails with another, he said. In general, people believe that the greatest risk to their identities is damage to their credit. "People get that from the identity theft protection products that monitor your credit reports -- and do nothing else."

The Plot Thickens

Secure Identity's internal studies show that Social Security numbers are being used for purposes beyond credit card spending sprees.

So does anecdotal evidence. The number of data-theft type Trojans, such as back doors and key loggers, steadily increases from the beginning of the year through mid April, Mary Landesman, senior security researcher at ScanSafe, told the E-Commerce Times. "It happened last year and this year as well."

This year there was a 9 percent increase in such malware on the Internet, she said.

Even consumers who manage to avoid such traps can still fall victim at any point during the year, Secure Identity's Ansley noted. He pointed to the huge -- 94 million -- number of identities stolen in the TJ Maxx heist.

"That number is truly phenomenal," he said. "It represents a third or a half of all U.S. adults."

Social Security Statements

For these reasons, it is important to do more than just monitor credit reports -- the lowest common denominator solution to identity theft, but one that is often viewed as a best practice.

"This is not something you can prevent -- we are beyond that," said Judd Rousseau, director of fraud operations at Identity Theft 911. "The best you can do is try to discover as soon as possible when someone has co-opted your identity."

One measure is to carefully study the statements the Social Security Administration sends out each year on people's birthdays. "If you see an amount you don't recognize as income earned, that is the time to take action," Rousseau said.

One best practice is to have your entire identity -- not just your credit report or social security number -- monitored by a service provider, suggested Ansley.

"The number and types of identity fraud are multiplying by the day and have become pervasive," he said. ID theft these days could impact not just finances, but also what level of healthcare a person might receive in an emergency situation.

Another worse-case scenario is a stolen ID changing a person's standing in the criminal justice system, he warned. "Your stolen ID could be used by a convicted sex offender who wants housing in a community or by a deadbeat parent looking to escape child support payments."

Considering all the scary possibilities, an IRS audit might end up being a cakewalk for the unfortunate victim of identity theft.