Tax Fraud and Synthetic Identity

synthetic identitySynthetic identity fraud is a driving factor behind tax crime and other forms of theft and financial fraud.


According to the Federal Reserve, synthetic identity fraud (SIF) is defined as “the use of a combination of personally identifiable information (PII) to fabricate a person or entity in order to commit a dishonest act for personal or financial gain.” In the internet age, many people assume their personally identifiable information, like their address, shopping proclivities, and age, are just “out there.” And they are correct. 


A synthetic identity is an amalgam of data points, usually built over time from PII. While identity theft involves the wholesale theft of an identity by a fraudster, a synthetic identity is likely only to lift one or two pieces of PII—and usually not in an easily noticeable way. Financial loss to synthetic identity fraud reached $20 billion in 2020, and the level of damage continues to rise. Look at it this way—how do you track and arrest someone who does not exist?


Data breaches were once front-page news. Today, data breaches are expected, cyber insurance is sold to protect corporations from liability, and not much is understood about where all that data might go when exfiltrated. In its Annual Data Breach report, the non-profit group, Identity Theft Resource Center reports a 68 percent increase in data compromises in 2021 compared to 2020.


A synthetic identity is usually grown over time before the false identity is triggered and fully exploited. Identity elements such as name, date of birth, Social Security number, and other features are lifted and added to a body of knowledge like contact information, email, and street address, which becomes the synthetic identity. Social security numbers are often lifted from the elderly, infants and children, prisoners, or homeless individuals—those who are not likely to be checking their credit reports. Young adults seeking their first loan for college or other purposes may find their credit rating already destroyed through use in SIF.


SIF is used to obtain loans, money, goods, and other assets upon which default soon follows.  Crime networks may use synthetic identities as part of drug and human trafficking or global money laundering.


Recommendations on avoiding synthetic identity theft are similar to those you hear about keeping your PII safe—keep critical identity information safe, shred documents, and beware of efforts to trick you into providing information by phone, mail, or online. Review your credit report regularly and review your Social Security report to ensure someone else is not employed using your SSN. If you receive tax notices or statements on accounts about which you are unfamiliar, reach out to the IRS.


If you are using, or have used SIF to engage in criminal tax fraud or filing fraudulent tax documentation—talk to an experienced criminal tax defense attorney in your area to better understand the options available to reduce or manage allegations from the IRS or other law enforcement agencies.


Speak with our tax lawyers today about an IRS audit or criminal tax charge

Serving local and international clients from offices in Chicago and Cleveland, the legal team at Robert J. Fedor, Esq., LLC delivers strategic representation and guidance with compliance questions, tax litigation, or criminal tax defense. Call 800-579-0997 or contact us online today.


Understanding Tax Fraud