Death and taxes: why identity theft risk doesn't end with life

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Updated: 11/30/2012 12:39 pm
RENO, Nev. (KRNV & -- It's hard to imagine battling the IRS after the death of a loved one, but that's exactly the situation a Reno woman has been dealing with.

You probably guard your identity pretty closely, especially your social security number.  But after you die, that number becomes public information – opening the door for criminals to steal from the IRS in your name.

“The sadness and the sorrow is indescribable,” Paula Penrod said. “Especially when your son is killed. But then to have to deal with something like this emotionally it just traumatizes you even more.”

When Ryan Penrod's parents filed his final tax return after his death they found out an identity thief had beaten them to it - making off with a refund of nearly $3,000 and sticking them with a $5,500 bill from the IRS after the fake return was combined with the real one.

The family's accountant Tim Nelson says there's nothing the Penrods could've done to prevent this, and a major issue is the availability of social security numbers.

“A death certificate is the only way the Social Security Administration knows to close out everything associated with the SSA,” Nelson said. “So a death certificate is filed with a SSN on it, so these guys go out and online get a copy of usually the death certificate with the social security number.”

Death certificates are public information and a social security number is all you really need to prove your identity on a tax return.

Senator Dean Heller says common sense should prevent these crimes. 

“Vital statistics should have this information,” Sen. Heller said. “They should be able to download to the IRS if they get a tax return on a social security number of someone that is no longer alive. Don't you think that'd be a red flag?”

So the Social Security Administration knows when someone dies and they are supposed to be sharing that information with the IRS.

When News 4 asked how long it takes, after two phone calls and emails, the IRS wouldn't answer, and SSA officials just say clients can choose to receive an update of its Death Master File weekly or monthly.

Senator Heller says there are clear communication problems.

“If you're asking me if there's logistical problems between the IRS and other agencies the answer is yes,” Sen. Heller said. “Plainly the answer is yes, and clearly they need to solve those kind of problems.”

Another issues is right now the IRS doesn't verify your address with the U.S. Postal Service. There's actually an IRS form you're supposed to submit when you move.
“Most people don't even know that that form exists, let alone submit it,” Nelson said. “So when you file your tax return you're going to do it next year based on your current address. So it's reasonable to assume, from an IRS standpoint, that maybe they did move.”

So when the fake Ryan Penrod filed from Lake Wales, Florida instead of Reno, Nevada, it was overlooked.

Paula Penrod says the system needs to change.

“It shouldn't take this long to clear up something that is this serious,” Penrod said. “I would also like to see the laws strengthened and the IRS strengthened so that this can't happen to any other families.

Senator Heller agrees.

“You're talking about being able to trade and to read information back and forth between agencies that currently they're not able to do today or they're not able to safeguard the information that they get from other agencies,” Sen. Heller said.  “That's a problem. That's a big problem.”

The IRS declined an on-camera interview but they did tell News 4, that in a testimony before congress in May, the IRS deputy commissioner said they're taking steps to prevent fraudulent returns filed in the names of deceased individuals like Ryan. Their best hope of preventing problems like this from happening in the future.

Those steps include working with the Social Security Administration to share and use information in a more efficient way, and getting the law changed to make it harder for people to access the social security Death Master File.

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sureshkrishnan - 12/6/2012 6:52 AM
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Informative article. Just read a whitepaper about this very topic " Wire fraud and identity theft Risks and prevention for banks and consumers" it provides valuable information readers will find it helpful @

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