The issue of identity theft is growing. The IRS is faced with twin challenges on this front: The IRS needs to quickly process tax refunds but it also needs to combat this growing issue. The IRS’s current policy is to process the first return it sees with a given social security number and hold up processing on the second return. The major issue with this is that the second return is usually the correct return.
Consider hypothetical taxpayers, George & Jane Jetson. Mr. & Mrs. Jetson filed their tax return last year with, say, a Las Vegas address. Come January 17th, enterprising crooks in Tampa, Florida who have somehow stolen the Jetsons’ identity file a return claiming a refund. (I chose Tampa because it’s a hotbed of tax-related identity theft.) The IRS mails a refund check to the crooks (or direct deposits it). Weeks later, the Jetsons file their real return and the problem is uncovered.
I have a possible solution to this issue. The IRS should check the address of every filed return versus the address on file for the taxpayer. If the Jetsons’ return is filed with the same address as used last year, it’s likely the return is legitimate. If not, then the IRS should put a hold on processing the return, and send a letter to the taxpayers at the address used in the prior year (with forwarding requested). The letter would note that the IRS received a return from the taxpayers, but the address does not match the address on file with the IRS. The letter would further state that processing of the tax return is being held awaiting confirmation of the address change. (The post office does this with all submitted change of address forms; there’s no reason why the IRS can’t do this, too.)
If the filed return is valid–the taxpayers moved but did not inform the IRS–the taxpayers would be given a number to call where they could input some information from the prior return and the processing of the return would resume. If the filed return is not valid, the taxpayers would have a different number to call and the IRS would be able to quickly move after the probable crooks.
There is a second part to this program that would be necessary. The IRS would need to send confirming notices to individuals who send in Change of Address forms to the IRS. The reason for this is if this program is implemented, identity thieves would just submit Form 8822 and change the address. The confirming notice would ask the taxpayer to dial a specific phone number, input a code that’s on the letter, and then the change of address would be processed. The confirming notice would be sent to the address on file, of course.
I can see a few kinks with this proposal. For example, people who have been out of the system for some time would have issues. A second issue will be where an identity thief uses the correct address but has chosen direct deposit. Still, my proposal should stop a large percentage of tax-related identity theft. It would have the side benefit of forcing individuals and businesses to send change of address forms into the IRS. There would be some delays to taxpayers who have moved and have not informed the IRS, but that’s the only major drawback that I see in this system.
Overall, my proposal seems to me to be a solution that should be relatively easy to program into the IRS’s computers. And unless I’m missing something, it should stop a lot of tax-related identity theft.