When Loved Ones Die, Their Identity Is There for the Taking

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George told lawmakers, "There is much more fraud that it [the IRS] does not detect." The inspector general "identified approximately 1.5 million additional undetected tax returns with potentially fraudulent tax refunds totaling in excess of $5.2 billion," said George. Those refunds were paid out. "If not addressed, we estimate the IRS could issue approximately $26 billion in fraudulent tax refunds resulting from identity theft over the next five years," he testified.

The IRS told ABC News that it believes that five-year estimate is "far too high. The estimate was based on figures from 2010, before the IRS instituted major changes in the way it handles identity theft cases," the agency said. "Our increased compliance and prevention efforts mean we are stopping more refund fraud than ever before."

The Social Security Administration had recently taken steps to cut back on the Master Death List information it releases publicly, leaving off the decedent's state and ZIP code. And the IRS said it has installed identity theft screening filters on its computer systems to flag suspicious returns. "Fighting identity theft will be an ongoing battle for the IRS and one we cannot afford to let up on," said Steven Miller, an IRS deputy commissioner, in written testimony.

Late last year, the IRS established a special taxpayer protection unit to help handle identity theft cases. But George testified that those trying to file their 2011 taxes found it difficult to get through to the unit. "The unit received more than 86,000 calls during the 2012 filing season, but has only been able to answer about 21,000," said George. And according to his testimony, the average phone wait time for taxpayers was almost one hour.

Taxpayers caught in this mess are forced to prove their loved one's identity to the IRS. Agin said he had to provide evidence to show the IRS that his late daughter was his child. Some cases have taken up to a year to resolve.

Congress is considering a number of bills that would limit access to the Master Death List. For Agin and the hundreds of thousands of other taxpayers who have been victims of this fraud, it can't come soon enough. "It's bad enough losing your child to any type of disease, cancer in any manner," said Agin, "but then have somebody steal their identify, the last remaining vestige of your child, it's horrible."

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