Parents do everything they can to protect their children but if something horrible does occur, no parent is prepared to discover that they must not only deal with their grief, but they must also contend with the fact that their deceased child’s identity has been stolen.

According to Bloomberg.com, more and more parents have discovered that someone had stolen their child’s social security number directly from the government through the Social Security Administration’s on-line public Death Master File. The file is used by the agency to stop benefits for the deceased as well as to pay survivors for benefits that they may be due.

It has also become an ideal place for identity thieves to search for information they can use to file false income tax returns. Parents often don’t discover that their deceased child’s identity has been stolen until they file an income tax return. The IRS claims that as an agency they must carefully balance accuracy with the need to process returns efficiently. Once the IRS sends a refund, even if it is in response to a fraudulent return, the money is gone.

The same file also creates another problem by erroneously listing living individuals as deceased. This creates what is known as credit zombies. This is most often due to data entry errors which are easy to make but almost impossible to correct. Inspector General Patrick O’Carroll Jr. testified that from January 2008 to April 2010 more than 35,000 people were placed in credit limbo when they were declared dead in the system.  This keeps these innocent people from opening bank accounts, obtaining loans or even getting a driver’s license renewed.

Lawmakers have heard from their constituents about identity fraud and error and are trying to change or limit access to the Death Master File as well create a more effective system for correcting errors. Chairman of the Senate Subcommittee on Fiscal Responsibility & Economic Growth, U.S. Senator Bill Nelson recently convened hearings on tax refund fraud as did a panel in the U.S. House of Representatives.

Until a legislative solution can be reached, the IRS is attempting to stem tax fraud identity thefts by flagging deceased taxpayer’s final returns and preventing any one else from using their Social Security numbers.