Foil Tax ID Theft

Alan Hoffman spent 49 years in NASA's Jet Propulsion Laboratory, where he helped test and design the Curiosity rover, which landed on Mars in August. He's a rocket scientist, but he was unprepared for the challenge of recovering a stolen tax refund.

Hoffman and his wife, Susan, were victims of refund-related identity theft, a fast-growing crime that costs taxpayers billions of dollars a year. In July, the Treasury Department's inspector general projected that thieves could pocket up to $21 billion in stolen refunds over the next five years.

The Hoffmans learned they were victims of identity theft in April 2011, after their tax preparer, Melinda Thompson in Glendale, Cal., told them that the IRS had rejected their 2010 return because someone had already filed a tax return using Alan's Social Security number. It took nearly a year -- and many phone calls to the IRS -- for the Hoffmans to get their refund.

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The IRS, which disputes the inspector general's $21 billion estimate, says it has added new filters that detect phony tax returns before refunds are issued. Still, one effective way to protect yourself is to file your tax return before crooks have a chance to waylay your refund. The Hoffmans filed their 2011 return in February this year and received their refund promptly. "We made sure we did it early," says Susan. It's a strategy they plan to repeat for 2012.

Also to consider: The less the IRS owes you, the less you have to worry about a delayed refund. Consider filing a revised W-4 with your employer to bring your withholding down to the minimum possible. Our Easy-to-Use Tax Withholding Calculator will help you.

This article first appeared in Kiplinger's Personal Finance magazine. For more help with your personal finances and investments, please subscribe to the magazine. It might be the best investment you ever make.