In 2012, 16.6 million people, or approximately 7% of all persons in the United States age 16 or older, were victims of identity theft.347 The Identity Theft Supplement (ITS) for 2012, a part of the National Crime Victimization Survey (NCVS), also estimated that direct and indirect losses from identity theft in 2012 totaled $24.7
342 Finklea, Identity Theft: Trends and Issues, 19–20. As noted in the CRS report, former Attorney General John Ashcroft noted that an Algerian national had stolen the identities of 21 members of a health club, and transferred the identities to an individual later convicted of the plot to bomb LAX in 1999.
343 Finklea, Identity Theft: Trends and Issues.
344 UNODC, “Handbook on Identity-Related Crime 2011,” accessed August 22, 2013, http://www.unodc.org/unodc/en/organized-crime/tools-and-publications.html, 118.
345 Ibid., 119.
346 Ibid.
347 Erika Harrell and Lynn Langton, “Victims of Identity Theft, 2012,” Bureau of Justice Statistics, December 2013, http://www.bjs.gov/content/pub/pdf/vit12.pdf.
billion.348 To put the scale of the losses from identity theft in perspective, the losses in 2012 from all other property crimes (burglary, motor vehicle theft, and theft) totaled $14 billion. Thus, as noted in the ITS, identity theft losses exceeded those from burglaries and theft by more than four times, and losses from motor vehicle thefts by more than eight times.349
The problem of identity theft also appears to be growing. The 2008 ITS for Victims of Identity Theft estimated that in the preceding two years, 11.7 million persons, representing 5% of the U.S. population over the age of 16, had been victims of identity theft, with a corresponding direct and indirect losses estimated to be 17.3 billion over that two-year period.350 Some uncertainty exists as to whether in more recent years the occurrence of identity theft is increasing, decreasing, or changing in significant ways.
Despite growing concerns about identity theft, between FY 2009 and FY 2010, the number of identity theft cases and associated prosecutions decreased relative to FY 2008.
Varying explanations for this decrease have been posited, including speculation that that fewer incidents have occurred, or that fewer law enforcement resources are being devoted to the issue. However, some research indicates that the number of individuals victimized has increased but that the perpetrators are better able to evade law enforcement, that law enforcement resources dedicated to the issue have decreased, or that the prosecutions have shifted to address cases of aggravated identity theft.351 It is worth noting that estimates of identity theft losses are compiled by different sources and some variation
348 Harrell and Lynn Langton, “Victims of Identity Theft, 2012.”
349 Ibid.
350 Lynn Langton and Michael Planty, Victims of Identity Theft, 2008, National Crime Victimization Survey, Bureau of Justice Statistics, December 2010.
351 Finklea, Identity Theft: Trends and Issues, 16–17 Aggravated identity theft refers to the form of the crime introduced by the Identity Theft Penalty Enhancement Act that brings enhanced penalties under the law when the offense is committed in connection with other federal offenses. (Public Law 108–275). The offenses include theft of public property, thefts by bank officers or employees, theft from employee benefit plans, theft of Social Security and Medicare benefits, several immigration related fraud offenses, and specific violations related to terrorism.
may occur between the sources.352 Nevertheless, the estimated costs of identity theft are substantial.
One area in which identity theft is clearly increasing is that of identity theft used to obtain tax refunds fraudulently. Government officials note that close to $3.6 billion in fraudulent tax refunds were obtained in tax year 2011.353 According to tax officials, the problem has grown exponentially in the last three years, which caused nearly 1,500 investigations to be launched last year, up from just 276 in FY 2011.354 A particularly troublesome issue associated with identity theft is seen in the weaknesses being exploited in the ITINs. It is now known that that the application process for ITINs is subject to fraud. State driver’s license bureaus are allowing ITINs to be used by illegal aliens to obtain driver’s licenses even though the ITINs are only to be used only as a taxpayer identification number and not as proof of identity.355 Since the majority of readers are likely unfamiliar with the ITIN number, some background may be helpful.
Individuals employed in the United States are required to have a valid SSN for employment.356 The SSN is required to be used to file tax returns, to report income, and for record-keeping purposes. Persons required to file tax returns are required to include an identifying number. That number included on the tax returns is known as the taxpayer identification number.357 For most people, the number included is the SSN. In 1996, the Internal Revenue Service (IRS) created the ITIN to provide tax identification numbers to people who do not have or are not eligible to obtain an SSN. Individuals receiving an
352 For example, the CRS cites to a source that put the estimated cost of identity theft to Americans in 2010 at $37 billion. This estimate, citing Javelin Strategy & Research, 2011 Fraud Survey Report:
Consumer Version, February 2011, would seem to indicate, when compared to the BJS estimate for 2012 that identity theft actually decreased in 2012.
353 Matt Zapotosky, “IRS Tax Refund Thieves Increasingly Use Stolen Identities to Divert Money to Themselves,” The Washington Post, sec. Local, February 19, 2014, http://www.washingtonpost.com/
local/crime/irs-tax-refund-thieves-increasingly-use-stolen-identities-to-divert-money-to-themselves/2014/
02/18/4bd7f4cc-7ed0-11e3-9556-4a4bf7bcbd84_story.html?hpid=z4.
354 Ibid.
355 Treasury Inspector General for Tax Administration, Substantial Changes Are Needed to the Individual Taxpayer Identification Number Program to Detect Fraudulent Applications, 29.
356 Ibid., 2.
357 Treasury Inspector General for Tax Administration, Substantial Changes Are Needed to the Individual Taxpayer Identification Number Program to Detect Fraudulent Applications.
ITIN should be either someone residing in the United States but not authorized to work, or a nonresident of the United States.358
In July 2012, the Treasury Department’s Inspector General for Tax Administration (TIGTA) issued a report regarding the absence of adequate measures to prevent fraud in the acquisition of ITINs. The report, launched in response to congressional inquiries based on whistleblower complaints, uncovered a number of management failures that had gutted anti-fraud measures in the ITIN process. It also shed light on the pernicious problem of fraud in the ITIN application process and why it matters. Perpetrators of fraud are exploiting vulnerabilities in the program, which serves to undermine a substantial tax related program that puts revenues at risk through fraudulent refunds or credits.
The TIGTA report demonstrates that between October 2007 to April 2010, the Wage and Investment Division, which administers the ITIN program, identified tens of thousands of fraudulent ITIN tax returns with erroneous tax refunds totaling more than
$43 million dollars.359 TIGTA also determined that inadequate procedures were in place to verify each applicant’s identity and foreign status, and recited various recommendations made in the past that had not been followed, and existing processes in place that created identity theft vulnerabilities.
TIGTA also noted that what had been intended as a number to be used for filing tax returns for people ineligible for a Social Security card, was increasingly being used as a federal identification number for non-tax purposes. TIGTA noted that the use of the ITIN for various non-tax purposes increased the need for adequate processes to ensure that only eligible individuals receive the ITINs.360 The fraudulent acquisition and use of ITINs, and the improper acceptance of ITINs as proof of identification by states when issuing identification documents, highlight the vulnerabilities, to both the financial system, and the integrity of the identity document issuance process by states. REAL ID
358 Treasury Inspector General for Tax Administration, Substantial Changes Are Needed to the Individual Taxpayer Identification Number Program to Detect Fraudulent Applications, 2.
359 Ibid., 13.
360 Ibid., 29.
would have additional benefits in stemming these types of activities by helping to ensure that the identity documents presented to acquire an ITIN were reliable, and that the identity documents issued by states are issued under more rigorous processing requirements than currently exist, and which, are clearly being exploited.
In addition to the specific ITIN fraud, the TIGTA has also examined the issue of the impact of identity theft in the tax administration system in general. It has estimated that for processing year 2011, the IRS identified 2.2 million tax returns as fraudulent. Of those, approximately 940,000 tax returns involved identity theft, and were associated with $6.5 billion in associated fraudulent tax refunds involving identity theft.361
While the impact of identity theft on the fraud is associated with tax administration, it is also the case that the issue of identity theft and document fraud has a nexus to illegal immigration and facilitates the stay of persons illegally in the United States. Illegal immigrants or others may use stolen identities to obtain employment and then disappear without paying taxes that leaves the victim with a large outstanding tax bill. One U.S. taxpayer was reportedly faced with a $1 million back-tax bill, even though she was a stay-at-home mother. An investigation later found that 218 illegal immigrants were using her SSN. From 2002 through 2005, multiple identity criminals used the name and SSN of a Mexican-American factory worker to get jobs in Kansas, Texas and New Jersey. The victim had to deal with repeated allegations of under-reported income and long delays in receiving tax refunds owed to him.362
Finally, and potentially most significant from the standpoint of national security, is the problem of identity fraud and theft in connection with the acquisition of U.S.
passports. In July 2010, the GAO testified before Congress in connection with its efforts to conduct undercover testing to identify vulnerabilities in the Department of State’s
361 Testimony of the Honorable J. Russell George Treasury Inspector General for Tax Administration:
Identity Theft and Tax Fraud (Washington, DC, 2012).
362 “Handbook on Identity-Related Crime 2011,” 119 citing to Kevin McCoy, “Identity Thieves Tax the System,” USA Today, April 10, 2008.
(DOS) passport issuance processes.363 This testimony was a follow-up to a 2009 GAO audit.364 This type of vulnerability is extremely significant given the desirability of and privileges afforded to holders of U.S. passports. As the GAO noted, people who seek to acquire U.S. passports through fraud are typically doing so to conceal involvement with serious crimes, such as terrorism, narcotics trafficking, money laundering, or murder. The GAO concluded that DOS remained vulnerable to fraud as the results of its testing showed that five of seven U.S. passports were issued, despite the existence of multiple indicators of fraud or identity theft in each of the applications.