The Tax Form That Could Save Your Refund

April 9, 2013— -- The Bible tells us, "It is better to give than to receive." Most Americans don't feel that way on April 15. But when the Lord (a.k.a., an IRS algorithm) shines his countenance upon us and a portion of what we paid is returned in the form of a tax refund, it seems only fair that we actually get to spend that money.

Unfortunately, this is not always how it works. In 2011, 1.5 million Americans never saw their refunds or were forced to wait 200 days or more. They were diverted to prepaid debit cards that landed in mailboxes rented by identity thieves. The take: a combined $5.2 billion from American taxpayers. The problem is only getting worse. According to the Federal Trade Commission, tax and wage-related fraud accounted for 15.6 percent of all identity theft complaints the agency received in 2010. That percentage jumped to over 24 percent in 2011, and jumped again to 43.4 percent by 2012.

Stealing a tax refund is one of the most direct ways for an identity thief to monetize the information they steal. And it's way too easy. Why should a thief go through all the trouble of manufacturing fake credit cards or returning fraudulently purchased electronics to stores for cash when he or she can steal more money, with less risk of detection and arrest, by scribbling your name and Social Security number on a 1040EZ and dropping it in the mail or e-filing it?

Not the last you'll hear of ID thieves

Don't think the trouble will stop once an ID thief receives a tax refund in your name, either. The transfer of money from the IRS is the best possible confirmation that an identity thief has the correct information about you. Now you're really in trouble. There is every incentive for the thief to keep going, opening new credit accounts, hijacking old ones, and making fraudulent purchases in your name.

So, tax identity theft may in fact be just the beginning, not the end, of a crime spree that could sink your credit score and your finances and make you wish that the thieves had taken your life, too -- because that's how bad it will suck being you.

And while I do believe there could be a solution, it's not going to happen overnight. Meanwhile, while the IRS's high-speed, highly-automated tax processing systems make this tax identity theft possible, the agency also affords regular taxpayers a layer of protection (though not a sure thing by any measure), and a possibility to detecting identity theft early in the game.