The latest news in the identity theft arena is a statistic showing that IRS related identity theft has grown 644 percent in the past four years.

Nina Olson, the National Taxpayer Advocate, warned Congress in a report that identity theft is becoming one of the biggest issues facing taxpayers today. The two main reasons cited were identities stolen to file fraudulent refunds and to obtain employment.

As more pressure is being placed on employers to ensure their employees have a social security number that matches a name, more illegal immigrants are using an identity that matches the social security number on their employment records. No-match legislation, which was introduced by the Department of Homeland Security has been held up in a Federal Court, but some States are taking matters into their own hands. I also read an interesting article in the Twin Cities Daily Planet indicating that these letters are already causing action to be taken at some employers.

Prior to no-match legislation, anyone could simply make up a social security number and it would pass muster for employment reasons.

No matter what side of the fence someone is on from a political perspective, these no-match letters are likely to increase the amount of identity theft we are seeing in regards to tax returns. With all the stolen personal information and counterfeit documents being sold by organized criminals — it probably isn’t going to be hard to use someone else’s identities for employment reasons. Stolen identities are available in a lot of places (including the Internet) and counterfeit documents are hawked on street corners across the country.

Another thing I’ve written about is the increasing amount of fraud being seen using the earned income credit to get a quick refund using someone else’s information. The Earned Income Credit — which is designed as a windfall of several thousand dollars for lower income people — is easily manipulated by individuals and on a larger scale, by dishonest tax preparers to scam the IRS.

Last year, a large Jackson Hewitt franchisee was charged by the Justice Department for (allegedly) encouraging this type of fraud. Dishonest tax preparers often recruit low income people to used a forged W-2 (forms are easily available in Office Supply Stores) and get a quick refund of thousands of dollars. In other cases, this is also done using stolen identities, causing the legitimate person a lot of heartache when they go to file their return. Ironically, in years past, there have even been reports of this type of fraud being committed by prisoners who weren’t being monitored, very well!

Easily available W-2 blanks and the seeming inability of the IRS to verify payroll information are two of the enabling factors of this type of fraud.

The recent report indicates that the IRS will start using a computer program to identify potential identity theft cases next year. It is also considering establishing an office to assist identity theft victims.

Olsen also plans to monitor the use of private debt collectors by the IRS, carefully. The reasons cited are a lack of transparency on the procedures used by these agencies and the potential for people’s rights to be violated by these agencies.

Stories of identity theft victims being harassed by collections agencies for debts they were not responsible for are well documented and have caused innocent people a lot of pain and suffering.

Another thing to consider is that since this type of identity theft normally doesn’t show up on a credit bureaus very quickly, we probably have a lot of people purchasing identity theft protection that will not necessarily detect the fact that they have become a victim. The Identity Theft Resource Center has information on how to check if your social security number is being used and what to do about it. The IRS also has a page on their site on how to deal with this issue.

The IRS also offers more information on their site about the Taxpayer Advocate Service and how they can assist the average person.

All in all, I consider this report timely and an issue that needs to be taken seriously given an already exploding statistic and the potential for this phenomenon to grow.

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