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Research and Statistics

Tax refund theft surges in FTC’s list of consumer complaints


A surge in tax refund ripoffs solidified identity theft as the top consumer complaint in the Federal Trade Commission’s annual list

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A surge in stolen tax refunds helped solidify identity theft as the complaint most often registered with the Federal Trade Commission in 2012, according to figures released Tuesday.

For the 13th straight year, the FTC reported that consumers complained most often about identity theft, even more than other categories that involved, say, aggressive debt collectors and shady car dealers.

Tax thievery more sophisticated

The numbers, however, show how identity theft has become more sophisticated over the years: No longer content to merely steal credit card numbers and place fraudulent orders, identity thieves are now more likely than ever to steal a Social Security number, file a fake tax return under a false name and reap the tax refund.

The 12,137 tax-related identity theft cases reported to the FTC in 2012 accounted for 43 percent of all identity theft complaints. In contrast, credit card fraud accounted for just 14 percent. Two years ago, tax-related identity theft accounted for just 16 percent of identity theft complaints.

“A spike of this magnitude suggests an increased prevalence, which may be attributed to a variety of factors, such as organized crime and tax ID theft rings,” says Lisa Schifferle, an attorney with the FTC’s division of privacy and identity protection. “Gangs are shifting from drugs to identity theft.”

Tax-related identity theft is also made easier by the move toward electronic tax filing, which does not require the attachment of printed W-2 forms. The increase is also augmented by people using false Social Security Numbers to verify employment eligibility, she said.

FTC top 10 compliant categories 2012

On its website, the Internal Revenue Service lists three dozen recent examples of people convicted of tax identity theft crimes. In one typical case, a man from Opa-locka, Fla., was sentenced to four years in prison in January 2013 after using students’ identifying information from a stack of scholarship applications at Florida A&M University to file false tax returns, then having two accomplices that worked as bank tellers cash the checks. He also had to pay nearly $300,000 in restitution

Florida leads in ID theft

Many cases originate from Florida, which again led the nation in the number of complaints about identity theft and fraud. Of the 10 metropolitan areas with the highest rates of identity theft complaints, Florida had nine, led by Miami, Naples and Tampa. Officials say Florida might be at the top because of its high elderly population, which is more vulnerable to having identities stolen in nursing homes and long-term care settings. FTC complaints from seniors were also up from previous years, Schifferle says.

In another scheme, in Boston, a tax preparer was sentenced to more than five years in prison after admitting to preparing duplicate returns for her clients: One version would go to the clients, but she would file a second version with the IRS that claimed a larger refund. She then pocketed the difference. The court ordered her to pay $400,000 in restitution.

Avoiding tax rip-offs

To avoid becoming a tax-return-fraud victim, experts recommend filing your return early, filing it on a secure Internet connection if filing electronically, and not leaving your completed return in your mailbox.

Overall, the FTC received more than 2 million complaints in 2012, its highest figure ever and a nearly 9 percent increase over the previous year. However, year-to-year comparisons are imprecise because FTC database, called the Consumer Sentinel Network, collected information from more sources in 2012 than in 2011. For instance, the new Consumer Financial Protection Bureau contributed 80,000 more reports in 2012, its first full year of reporting. A smartphone application called PrivacyStar, which allows users to easily report do-not-call and debt collection violations, reported about 125,000 additional complaints.

Still, the numbers show interesting trends. Complaints about identity theft, debt collection, online merchants, banks and auto sales and repairs rose, while gripes about health care, Internet auctions and credit bureaus fell.

Complaints about credit cards rose 36 percent, to 51,550 — the first rise in that category in three years, according to the FTC tally. The category covers “account or billing issues, including interest rate changes, late fees, credit disputes and overcharges,” and fraudulent card offers. Complaints had been declining in previous years, which experts attributed to clearer and more stringent rules springing from the Credit CARD Act of 2009.

And one popular scam from prior years seems to be dying out, or is at least complained about less: Complaints in the category “Nigerian/Other Foreign Money Offers” fell by half in two years, to just 7,800 in 2012.

See related:  Tax ID theft skyrockets; thieves feast on refund bonanza

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