Taxpayers face long waits, conflicting information when trying to recover from identity theft
Tom Morgan tried to file his federal tax return electronically this year, but he kept getting an error message that advised him to double-check his Social Security number.

Morgan thought the problem was a transposed digit or some minor glitch on the IRS' end, something he has experienced before.

"It was a very generic error message," he says. "No urgency, no 'You're in big trouble now.'"

Morgan says he didn't know until reading my column a couple of weeks ago that taxpayers receive this message after a thief has used their identity to file a bogus tax return and collect a refund.

"I nearly fell out of my chair," says the 42-year-old project manager who lives in Selbyville, Del., near the Maryland line.

Identity thieves have been filing fake federal returns for years, but it's now reaching epidemic proportions. In a recent speech, IRS Deputy Commissioner Steven Miller said that 2.6 million returns filed this year were under review for ID fraud. The agency also expects to spend $330 million in 2012 to fight the problem.

If you're one of the many taxpayers whose Social Security number has been stolen, you first will have to prove your identity to the IRS. Until then, your refund will be on hold. The next step will be to make sure that the criminal isn't doing further damage to your finances.

Victims who face foreclosure or eviction because of a delayed refund will have their cases expedited and can receive their money within a few weeks. But for most victims, it can be many months — and much frustration — before the problem is cleared up.

"Every time I call, someone at the IRS tells me something different," says Christie Bickelman, a Florida substitute teacher who says a thief recently filed two returns for different years using her husband's information.

One IRS worker told her she would receive an Identity Protection Personal Identification Number to use when filing a return, Bickelman says. But the next IRS representative said that wasn't the case at all.

Morgan says every time he calls the IRS he has to answer the same questions to verify his identity. "It takes 25 minutes to get to the heart of the matter," he says. "I wish we could establish a code word."

Victims complain that they get too little information from the IRS.

Bickelman says she found out about the fraud in April, but the IRS told her not to contact the agency again before July.

"Right now, they have nothing to tell us," she says. "We are in limbo."

Victims often say they have no idea how thieves got their Social Security numbers, but filching them isn't difficult. And with a number, a thief can make up W-2 information, submit a return before the legitimate taxpayer files and receive a refund directly deposited on a debit card.

Meanwhile, the IRS is under pressure to turn out refunds as soon as possible — even before the agency receives W-2s.

That's because employers must provide W-2s to workers by the end of January, but they have until late March when filing electronically to get the forms into the government's hands. Social Security, which tracks earnings, gets first crack at W-2s, and then sends the information to the IRS. By then, a thief could already have spent the refund.

Nina Olson, the national taxpayer advocate, told Congress last month that ID fraud could be prevented by maintaining the April 15th tax deadline, but postponing refunds until the summer when the IRS has the information needed to spot fraud. She concedes that this would be a tough transition for Americans who rely on refunds in February or March.

Pat Caralle, 50, was counting on his refund this year but found out recently he might not see his money for several months because a thief filed a return using his information.