Identity theft: Top consumer complaint and decreasing?

The Federal Trade Commission (FTC) released its 2013 annual report of consumer complaints on Thursday with identity theft at the top of the list for the 14th consecutive year. Of the more than two million complaints the FTC received in 2013, 14% or just over 290,000 were identity theft complaints. We have been comparing FTC reports for several years, and we noticed that identity theft made up 17% or almost 370,000 complaints in 2012. So we asked, “Are crimes involving identity theft decreasing?”

Annually, we have been conducting a comparison of the last two years of data compiled in the FTC’s Consumer Sentinel Network Reports. We report on the increasing and decreasing trends of different types of identity theft from year-to-year. The sharp decrease of nearly 80,000 complaints last year concerned us during the analysis.

The data compiled by the FTC for inclusion in the annual Consumer Sentinel Network Data Book is derived from consumer complaints made directly to the FTC as well as from other sources—a variety of federal and state law enforcement agencies and other organizations. The list of contributors is relatively short, considering the breadth of the crime.

The absence of most every state’s law enforcement branch and the state agencies that handle consumer complaints from the list of contributors is obvious. Consumers often complain to and expect their financial institution(s) to resolve identity theft complaints; however, those such identity theft complaints, which are likely in the millions, are not reported to the FTC by financial institutions. One FTC commissioned-study conducted over a decade ago suggests that most incidences of identity theft go unreported by consumers.

The number of complaints in the FTC report is nothing more than a barometer of fraud. Since 2001 the average annual complaints received by the FTC has been about 250,000. However, the FTC has consistently estimated that the number of identity theft victims is 10 million per year.

Nevertheless, one might view the FTC’s annual data as a random sampling of identity theft trends, which has been our interpretation for the purpose of looking for trends. Why did the FTC data on identity theft complaints show an apparent decrease in 2013 compared to 2012?

The prime culprit: Tax-related identity theft

Tax related identity theft, reported under the subcategory, “Tax or Wage-Related Fraud,” was the single most reported type of identity fraud in 2013. It composed of 30% (or just over 87,000) of all complaints.

FTC complaints for this type of identity theft during the calendar years (CY) 2010 through 2013 were: 39,170, 67,849, 160,209 and 87,017. Note that the tax-related identity theft complaints reported in 2012 represent a stunning increase over 2011 (43%) and the complaints reported in 2013 are as notable, but as a decrease over 2012 (-46%). The difference between the latter two years, a decrease of 73,000 complaints, is similar in magnitude to the 80,000 fewer overall identity theft complaints the FTC received in 2013 compared to 2012.

We believe that the 2012 tax-related identity theft complaints and the manner in which the IRS handled such complaints in late 2012 and during 2013 account for the apparent decrease in identity theft complaints from 2012 to 2013 as reported by the FTC.

For the purposes of complaints, the FTC notes that the U.S. Department of Treasury, Internal Revenue Service (IRS) refers complaints to the FTC. The FTC clearly distinguishes those entities referring complaints (consumers) from those that contribute complaints.

Because of the surge in tax-related identity theft in 2011 and 2012, the IRS stepped up enforcement during 2012 and increased personnel assigned to address identity theft. By late 2012 the IRS assigned more than 3,000 of its employees to work on identity theft related issues. In addition, the IRS trained 35,000 employees to help taxpayers victimized by identity theft.

The likely result of the IRS focus on detecting, resolving and preventing tax-related identity theft was that taxpayer victims were not referred to the FTC as in the past. The IRS simply addressed taxpayer identity theft issues directly and independently, not unlike how many financial institutions address financial fraud directly with their customers. This likely explains the significant decrease in the 2012 Tax or Wage-Related Fraud reported by the FTC.

How many taxpayers are affected by tax-related identity theft? The estimated number of victims of tax-related identity theft reported by the Treasury Inspector General for Tax Administration (TIGTA) dwarf the total identity theft complaints compiled by the FTC.

A recent TIGTA Press Release states, “identity theft affected 1.2 million taxpayers in Calendar Year 2012, and an additional 1.6 million were affected in Calendar Year 2013, as of June 29, 2013.” The corresponding “Tax or Wage-Related Fraud” complaints reported by the FTC are 160,209 and 87,017 respectively. The IRS identity theft fraud numbers show a 33% increase in tax-related identity theft for the first six months of 2013 compared to all of 2012. Therefore, tax-related identity theft is increasing significantly according to the IRS.

This discussion illustrates a few points alluded to early on in this article.

  1. The FTC numbers are complaints received, not actual victims. Complaints can be significantly fewer than victims. For example, while the FTC received 160,209 tax-related ID theft complaints in 2012 (including other non-IRS wage-related complaints), the IRS determined that 1.2 million taxpayers were affected by identity theft.
  2. Financial identity theft is often resolved by a consumer’s financial institution (bank, credit union, credit card company, or lender) and not reported to the FTC by the consumer or institution. One would conclude that there are millions of victims of financial identity theft that do not file complaints with the FTC because they complained to their financial institution and presumably the issue was resolved.
  3. The FTC numbers may be considered a random sampling of identity theft trends, however, keeping the two previous point in mind, some of the trends reported in the next article could and should be viewed with skepticism.

In the follow-on article, Identity theft: Recent trends, some of the trends from comparing the last two years of FTC complaint data will be discussed.

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