Federal authorities have taken action against 389 theft suspects as part of a coast-to-coast crackdown on identity theft, the IRS announced Thursday.

The Internal Revenue Service sweep took place in 32 states and Puerto Rico in recent weeks in an attempt to thwart identity thefts.

 “The IRS is very serious about prosecuting identity thieves and protecting American citizens,” said Steven Miller, IRS acting commissioner, during a telephone news conference.

The crackdown has led to 109 arrests and 189 indictments, Miller said.

Clearly, the IRS wants everyone – taxpayers, tax preparers and criminals – to know it is focused on the problem that has hurt so many victims, stolen so much money from the U.S. Treasury.

What is tax refund identity theft?

For identity theft victims, paying taxes is a nightmare

It’s when an identity thief uses a stolen Social Security number to file a false return in the victim’s name and claims a large refund. It can be done electronically or with a paper return.

If the refund is paid to the crook, the real tax payer cannot get his/her refund until the situation is investigated and it’s verified that their refund was indeed stolen. This can delay the process by weeks or months.

While enforcement actions are on the rise, the problem continues to grow. Miller said IRS is getting better at spotting false returns and blocking payment, but he admitted, “We still have work to do.”

He called identity theft one of the “biggest challenges” facing the agency, one that threatens the IRS and people’s view of the IRS.

Just look at the numbers.

Last fiscal year, the IRS stopped $20 billion in fraudulent refunds, up from $14 billion the year before. How much money made it into the hands of the crooks? Miller told NBC News there’s no way to know what they didn’t catch.

Online tax filing popular with taxpayers – and thieves

One indication of the continued problem is the growing number of taxpayers who are given a special IRS Identity Protection PIN to use when filing their taxes because they’ve been victimized by an identity thief. The IRS issued 250,000 of them in 2012. So far this filing season they’ve given out 770,000.

More jail time
The IRS wants you to know that number of convicted tax identity thieves continues to grow and the sentences are getting longer. The average sentence is now four years. But some refund cheats get much more time behind bars. Two recent examples:

• On December 21, 2012 in Memphis, Tenn., Aundria Bryant-Branch was sentenced to 262 months in prison and ordered to pay back $690,000 in restitution to the IRS. She was charged with passing along stolen information to crooks who used it to file false tax returns.
• On November 7, 2012, in Chicago, Andrew Watts was sentenced to 114 months in prison and ordered to pay $1.7 million in restitution. According to court documents, Watts filed more than 470 false federal income tax returns in the names of people who had died. In all, he claimed fraudulent refunds of more than $120 million.

Spotting refund identity theft 
The IRS says you could be the victim of tax refund identity theft if you are notified by Internal Revenue or you tax preparer that:

• More than one tax return for you was filed.
•  You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return.
• IRS records indicate you received more wages than you actually earned.
• Your state or federal benefits were reduced or cancelled because the agency received information reporting an income change.

The IRS contacts possible ID theft victims by mail. The agency never initiates contact via email. So if you get an email indicating you should contact the IRS – it’s bogus. But con artists also send out letters that look like they are from the government. If you get a letter that indicates you may be the victim of identity theft, do the smart thing and contact the IRS at a number you know is legitimate: 1-800-829-1040.

More information:

• News Release: IRS Intensifies National Crackdown on Identity Theft; Part of Wider Effort to Protect Taxpayers, Prevent Refund Fraud
• IRS: Identity Protection
• IRS:  Tips for Taxpayers, Victims about Identity Theft and Tax Returns
• Identity Theft Resource Center 

Herb Weisbaum is The ConsumerMan. Follow him on Facebook and Twitter or visit The ConsumerMan website.

The vast majority of Americans filed their tax returns electronically last year, taking advantage of e-filing systems that offer convenience for taxpayers but also have opened up a major new avenue for tax fraud.

About 81 percent of taxpayers filed their returns electronically in 2012, the independent IRS Oversight Board said in a report released Friday. That represents about 119 million taxpayers and is an increase of four percentage points from 2011.

The steady increase in the number of people filing electronically makes sense: For most people it’s easier and more convenient than filling out all those forms the old-fashioned way, with paper and pen.

Electronic filing of tax returns also has gained popularity in recent years with thieves, who use stolen Social Security numbers and other information to file fake tax returns using popular tax preparation software, and then collect hefty refunds.

The IRS has identified about 460,000 people who have been victimized by identity theft tax fraud since 2008, according to the IRS Oversight Board report.

The IRS has said that it is taking aggressive steps to stop such thieves from fraudulently filing electronic tax returns on other people’s behalf. Those steps include adding more fraud screens and increasing the resources devoted to helping identify theft victims.

About 3,000 IRS employees are now working on identity theft issues, Beth Tucker, the IRS’s deputy commissioner for operations support said in Congressional testimony late last year.

Still, security experts expect such fraud will continue to be a challenge this year.

 “The thieves aren’t stopping,” said Linda Foley, co-founder of ID Theft Info Source and an expert on identity theft.

The IRS Oversight Board also said preventing identity theft tax fraud – and helping victims of the crime – should continue to be a big priority for the IRS.

“(T)he IRS faces a major challenge in preventing thieves from using the e-file system to commit refund fraud on a large scale, including schemes based on ID theft. The IRS also faces the challenge of providing responsive assistance to taxpayers who have been victims of tax-related ID theft,” the report said.

Many taxpayers don’t realize they are a victim of identity theft tax fraud until they try to file their own taxes and find out someone else has done so before them. In the past, people who were victims of such fraud have described a frustrating, often monthslong process of trying to resolve the fraud problems and get their real returns filed.

Foley cautioned that fears about identity theft tax fraud definitely shouldn’t stop people from filing electronically. Online filing is still safer than filing by mail, she said, especially if you store the information you file electronically in a safe way.

“People should file electronically and then take steps to make sure that the electronic footprint that they made is safeguarded,” said Jay Foley, who runs ID Theft Info Source with his wife, Linda.

Here are some other steps you can take to reduce your chances of being a victim of such fraud.

Use a trustworthy tax accountant: One of the easiest ways for thieves to get access to your personal information is if you give it to them. The Foleys cautioned that you should check carefully who is filing your return on your behalf, because that person could be tempted to sell your information or use it themselves.

File early: One key way to prevent fraud is to get your return filed before a thief has the chance to. Jay Foley said one common tactic is to take information that was stolen last year and use it to file a fake return as soon as possible, likely in early February.

Protect your data: If you file your return electronically, make sure that the computer you used is secure. Linda Foley recommends saving the data on a thumb drive that you remove from the computer once you are done filing and store in a secure space.

The IRS also recommends that people not carry their Social Security card with them or share their Social Security number unless absolutely necessary. They also recommend installing security software on your computer and running regular credit checks.

Jay Foley also said you can protect your data more easily by filing your taxes yourself, rather than sharing it with a tax preparation service.

“Unless you have a very serious reason for going out and hiring somebody to do your taxes, do them yourself,” Jay Foley said.

Related:

IRS faces surge in identity theft tax fraud

For identity theft victims, paying taxes is a nightmare