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How identity theft cost Uncle Sam $5.2B in 2013

By Christine DiGangi/

Identity theft cost the Internal Revenue Service more than $5 billion in tax year 2013, according to an analysis from the U.S. Government Accountability Office. While the IRS estimates it prevented $24.2 billion in fraudulent refunds, there are still thousands of taxpayers whose tax refunds were delayed because a criminal beat them to the joyous task of filing tax returns.

Biggest IRS scam around: Identity tax refund fraud

Regardless of the fact that it's not the best budgeting strategy, people often rely on their tax refunds to pay bills. When an identity thief files a fraudulent return using someone's Social Security number, that person won't know about the fraud till they attempt to file themselves, and instead of the speedy refund they may have been counting on, they may have no idea when they'll get their money from the IRS.

Take the story of Wendy Boka Gonzalez: She attempted to e-file her last joint tax return with her late husband, who died suddenly a few months before, only to find someone had used his Social Security number to get a fraudulent refund. Gonzalez didn't get the roughly $2,000 refund she was entitled to until more than 2 years later.

Gonzalez was in a good financial situation and wasn't counting on the refund to meet her financial obligations, but that's not the case for everyone who has to deal with tax-related identity theft. As important as it is that the IRS succeeds in preventing a large amount of identity theft, that $5.2 billion in fraudulent tax returns represents thousands of taxpayers dealing with the stress of identity theft, additional tax paperwork and financial setbacks that come with a delayed tax refund.

In its report, the Government Accountability Office suggested moving up the deadline for W-2 filing to Jan. 31, because most tax return fraud happens early in the filing season. Plenty of consumer advocates also encourage taxpayers to file their returns as early as possible, but as well-intentioned that advice may be, it's not something people often act on. People tend to be deadline-driven, so doing taxes in January may not be a priority for most consumers. Additionally, consumers often have to wait on forms from employers and investment accounts before finalizing their taxes.

In the world of identity theft, tax fraud is one of the trickiest beasts. Unless the thief uses your Social Security number to apply for and use credit, there's no way of knowing he or she has that information. If they're holding onto the number for tax season, you won't know of theft until they have filed a fraudulent return. At that point, your best option is to act quickly, document everything and persistently communicate with the IRS until it has resolved your issue.

Other forms of identity theft have clearer signs. If you're concerned your identity has been compromised, request your credit reports from all three credit bureaus and regularly pull your credit scores (which you can for free through for signs of suspicious activity.