Crooks stealing tax refunds in latest ID theft trend

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While waiting for your income tax refund this spring, beware that someone else may already have claimed it.

In one of the fastest growing forms of identity theft, crooks are using a stranger's Social Security number and other personal information to fool the Internal Revenue Service into diverting the person's rightful refund to the bad guys' pockets, according to a Scripps Howard News Service investigation.

The volume of tax- or wage-related identity theft complaints to the U.S. Federal Trade Commission more than tripled from 2005 to 2009, according to a Scripps analysis of more than 1.4 million ID theft records in the agency's Consumer Sentinel database.

That comes despite a decline in the overall number of identity theft complaints to the federal watchdog agency, which collects information for law enforcement authorities around the nation. Whether this is because the incidence of the crime is decreasing, or because victims are too frustrated, confused or embarrassed to contact the FTC, is unclear.

Striking an estimated 10 million Americans a year, ID theft has received volumes of attention in the last decade. When the spotlight is shined on a particular ID crime method, the number of related complaints typically drops.

For instance, over the years, financial institutions intensified efforts to identify and resolve cases where credit cards are stolen and used to run up fraudulent bills. In turn, the FTC data shows an overall drop in credit-card related identity theft complaints.

But they haven't disappeared, as Naples, Fla. resident Gilbert Sherburne knows too well. In November, his credit card company, Bank of America, contacted him when someone tried to purchase a $984 airline ticket with the 82-year-old man's card number.

Meanwhile, other types of ID theft, including purloined tax refunds and using a lifted identity to open new utility accounts, are growing.

The Scripps review of the data, which was obtained by a Freedom of Information Act request, shows:

-- ID theft complaints to the FTC declined 20.2 percent from 2008 to 2010. Agency officials say they cannot explain the decrease.

Despite the drop in overall complaints, however, there is evidence that ID theft is not actually slowing down. A 5,000-person nationwide phone survey by Javelin Strategy and Research, a private firm based in Pleasanton, Calif., found that the crime jumped 12 percent in 2009.

-- According to the FTC, complaints of a thief using a victim's credit card dropped nearly 32 percent from 2005 to 2009, the last year for which there was full data. Some experts attribute this to the financial industry's success at thwarting fraud cases, while also providing full reimbursements to consumers.

-- Even so, the most common method of ID theft remains opening new credit card accounts using another person's name (13.2 percent of complaints). The other most prevalent forms include using someone else's Social Security number and other personal information to get a job (11.1 percent), and stealing another's tax refunds or salary (8.9 percent).

-- The largest volume of complaints came from residents of California (230,269), followed by Texas (144,272) and Florida (105,241).

Steven Toporoff, an attorney in the FTC's division of privacy and identity protection, said the growing number of plundered tax returns is of increasing interest to the agency. The FTC is working with the IRS and other authorities to warn the public about the threat and provide suggestions for ways taxpayers can protect themselves.

According to the FTC data, 11,010 victims reported tax or wage-related identity theft in 2005. Four years later, that number rose to 33,774 victims.

Toporoff noted that the complaints are reported by the public and are not vetted for accuracy.

For victims, the process of recovering from any type of ID crime can be arduous.

"It was a nightmare," said Jeff Smith, 43, who works at Vintage Security, an alarm system company, in the Baltimore suburb of Jessup, Md. Smith had a $6,000 tax refund that was swiped by a thief. Smith eventually received his tax refund, after eight months of corresponding with the IRS and investigating the case on his own.

After learning that the thief cashed his tax refund at a bank in Marietta, Ga., Smith worked with police there to track down the culprit. Police determined that the thief was part of a ring, but by the time authorities conducted a raid, the suspects had fled.

Smith found out his identity had been stolen in the spring of 2007, when he was asked to pay taxes on jobs flipping burgers at a Wendy's restaurant and a car wash in Marietta. Smith later found out his name had been used to rent an apartment, take out utilities and to pay for stitches at a hospital in New York.

Just how a thief lifted Smith's tax return is not known. But a common scheme involves falsely advertising a free tax preparation service. In one case, a crime ring from Belarus duped American taxpayers in 2006 and 2007 with a bogus tax filing service they claimed was backed by the IRS, according to the U.S. Department of Justice.

Through this scheme, the criminals captured taxpayer information, then doctored it to claim larger tax returns. Finally, they submitted the phony tax returns to the IRS, and directed the cash to be sent to themselves.

Another emerging -- and increasing -- criminal enterprise: Thieves using a stranger's identity to start electric or gas service at the bad guys' address. In 2005, the agency recorded 8,427 complaints for utility identity theft. By 2009, that number more than doubled to 19,934.

The FTC records also reveal national hotspots for identity theft. Brownsville, Texas -- along the U.S.-Mexico border -- contains the ZIP code with the highest volume of identity theft complaints. Police there declined to comment, but experts in Texas attribute the high volume to illegal immigrant and drug smuggling activity in the region.

Another identity theft flashpoint is Brooklyn, N.Y. Six of the top 10 ZIP codes where victims suspect their assailants are based are located in that New York City borough.

New York City police spokesman Sgt. Carlos Nieves said the department does not track identity theft by ZIP code, and it has no idea if Brooklyn is a hotbed for the crime.

For interactive map with breakdown of types of identity theft nationwide by ZIP code, go to: http://scrippsnews.com/content/map-identity-theft-complaints-zip-code

(E-mail Scripps Howard News Service reporter Isaac Wolf at wolfi(at)shns.com.)

(Distributed by Scripps Howard News Service, http://www.scrippsnews.com)