The IRS Is Required To Protect Kids From Identity Theft. They're Not Complying.

One in four kids will be the victim of identity theft or fraud. Here's how the government is making it worse.

Children are surprisingly frequent victims of identity theft—around 25 percent of them will experience identity fraud or theft by the time they reach adulthood. The consequences of bad credit caused by fraud are both steep and difficult to reverse. Thankfully, the government is required to alert child victims of identity theft. However, it is failing to meet these obligations, leaving easy paths for identity theft open.

The IRS is legally required to inform parents if their child's identity is being used to commit tax fraud. But according to Shoshana Weissmann, the digital director for the R Street Institute, a free-market think tank, the IRS has refused to do so because the kids in question don't have active tax accounts.

Kids in foster care are also particularly vulnerable to identity theft. In an attempt to remedy this, federal law requires states to run credit checks on foster kids over the age of 14, but most eligible children have not received these checks. "Even those who received any or all reports received little help understanding them," Weissmann notes. "And few children facing identity fraud receive any help resolving it."

The Social Security Administration (SSA) doesn't make things much better. Since most possible Social Security numbers have already been given out, a criminal who makes up a number has better than even odds that it is already in use or about to be assigned to someone else. Instead of taking steps to fix this vulnerability, Weissmann writes that the SSA doesn't check whether a number has been used in fraud before assigning it—leaving newborns saddled with bad credit histories from birth.

The stakes of this negligence are high. "More than half of minors who were victims of identity theft report being denied access to credit at least once because of it, and some deal with the consequences for a decade or more," Weissmann writes. "Some have even acquired a lifelong criminal record for an offense committed by the thief that stole their identity."

Weissmann notes that reforms are fairly obvious. "Congress, for example, can and should require the SSA to check SSNs before issuing them, and to make sure the agency does not not [sic] issue numbers with a record of fraud," she writes. "The IRS also needs to be reminded, with a bit more forcefulness, that it's legally obligated to alert parents when their children's identities have been stolen….Another option is to lock minors' credit files at the time SSNs are issued, or at least offer the option."

The trouble is that the government is hardly inclined to implement these changes. In the meantime, millions of American kids risk devastating—and preventable—damage to their credit.