Tax Return Identity Theft is a by-product of the IRS’s incessant desire to go electronic.  By not requiring a physicial signature, they are accepting returns on the honor system that someone, somewhere, has an authentic signature in their file.  Thieves know this, and are ripping off the Treasury blind.

How big a problem?  The IRS has 650,000 identity theft cases in its inventory, according to Nina Olsen, National Taxpayer Advocate.  The average refund theft is $3,000.  That $2 billion dollars only represents the cases in inventory.  The actual figure is estimated to be 5 times that…annually.

We spoke on this before, on numerous occasions actually, back when we knew of only a handful of cases.  It’s now a financial epidemic.  And it gets worse…

Our advice, as recently as yesterday morning on WWLP TV-22, was to file early.  The best defense is a strong offense.  Beat the thieves to the punch.  Well, believe it or not, Congress and the IRS have made that impossible.  The “fiscal cliff” negotiations of two weeks ago forced the IRS to change about 30 tax forms, which means that returns involving those forms (including depreciation, Form 4562), will not be ready until late February or early March.

Yup, so much for filing early.  Tax return identity thieves do not need these forms.  Heck, they are lying on the return anyways, as if they are going to care about due diligence and protocol?  So Nina Olsen’s big PR fiasco may just be getting warmed up.

The American Public has GOT to get more diligent.  Do NOT provide your personal information to anybody, for example, a car dealership (requiring financing) unless you are satisfied with their recording keeping and privacy security.  No satisfaction, do not buy from them.  Since you may not be able to file early, you MUST get more diligent in other ways.  The IRS Taxpayer Advocate has basically said they don’t have the ability to help if you have been a victim.  We have no defense in this battle, other than our own due diligence, and it costs the Treasury more than any war we have ever waged.

Looking for a preparer?  Stay away from “tax shops” that close after tax season.  Who are you going to talk to if you become a victim, if your tax preparer closes until next year, presuming they ever come back?  It’s scary to think the level of trust placed on fly by night operations.   Buyer beware, at its best.

As we told TV-22, when looking for a preparer, do the following:

1)  Do NOT do business with a preparer that charges a fee but will not sign your return.

2)  Do NOT do business with a preparer that charges based upon a percentage of the refund.  Just the appearance of that is bad, and the IRS is actively looking for these preparers.

3)  Use a CPA or an attorney (we are quickly learning in many cases they cost less than the national brands.  I personally see many returns prepared by H&R Block that are at least 25% higher than our fee structure, and I am an attorney at law AND a CPA!).

4)  Finally, ask how the preparer protects your personal information.  Visit the office, ask about security.  An inner city shop, on a street level plaza, with preparers working behind plate glass windows, does NOT pass the security smell test.  Alarm system, recorded video with siren audio, a secure file room, panic features, etc., passes the test.

In short, no one is looking out for you.  With tax return identity theft, you are literally on your own.  And Washington and the IRS are totally to blame.  The best advice is to stay diligent with your personal information and get your return filed as early as possible.  Good luck.