IRS identity theft keeps innocent taxpayers waiting months to receive their refund

TAMPA - The government says IRS identity theft has increased five fold in the last five years.  Thieves used the victim's social security number and a false address to commit the crime.

Despite a year of hard work, Sarah Mandunicky's financial future is up in the air.

"It's very frustrating, because you work for something and it's owed to you and someone else can go right under there and take it from you," Sarah said.

The IRS rejected Sarah's tax return this year. She says the IRS told her someone else already used her social security number to file a return. An IRS tax return transcript shows a return with her social security number using a different mailing address. Plus, the dependent listed on the return would have been born when Sarah was just two years old.

"It doesn't really add up," Sarah added.

The return still went through. Five months later, Sarah is still trying to get answers and a tax refund of more than $3,000.

"They are not very cooperative and not helping me with any of this," Sarah said.

And Sarah is not alone. Testimony from three other identity-theft victims at a congressional subcommittee led the IRS commissioner to issue an apology.

"We obviously need to do better," Commissioner Douglas Shulman said.

The IRS told the government accountability office that it's difficult to screen every return for fraud, and says there are trade-offs if they add more restrictive screening.

If the IRS compares returns from year to year looking for significant changes, it would cause refund delays for innocent taxpayers because millions of people move and change jobs every year.

"I think the pin is really the solution," said Commissioner Shulman.

The IRS is evaluating the use of a six digit pin for taxpayers to file a return but it's just a pilot program.

"Anything would make it better, especially with a pin that only certain people would have," Sarah said.

Once someone else has your social security number, it can take years to unravel the mess.  Privacy issues make it unlawful to share such information, but hackers gain access to it anyway. So victims like Sarah may always wonder how their social security number was stolen and when it will be used again.

"It's going to be something that haunts me," Sarah worries.

Protecting yourself from ID theft
If you suspect IRS identity theft, call the IRS Identity Protection Specialized Unit at 1-800-908-4490.

Checking your credit report is the best way to keep tabs on your identity. "Annual Credit Report" is the official free site that allows you to check your report. There are three credit reporting agencies, and you can check each agency's report once a year for free. To keep tabs on your credit year round, check one report every four months.

If you notice anything unusual, call the credit reporting agency. The steps to dispute a record on your report are contained in the back of the credit report.

The Federal Trade Commission outlines all the steps you can take to fight back once you're victimized. It outlines how to place a hold on your account.

You may also explore a credit freeze. This freezes your credit to reduce the damage. Nobody will be allowed to open another line of credit with your social without proving they are who they say they are. This will make it more difficult for you to get credit, but will reduce the damage to your identity.

To obtain a freeze, call Experian, Equifax, and TransUnion.

Finally, don't give your social security number to anyone unless it's absolutely essential. Many companies ask for your social, but they don't really need it.