IRS Seeing ‘Significant’ Surge in I.D. Theft, Refund Fraud

The Internal Revenue Services prevented the issuance of more than $14 billion in fraudulent returns last year, and the problem is intensifying as identity theft schemes are becoming more challenging to detect.
But the agency is expanding its filtering of tax returns and initiating other procedures to prevent bogus refunds from reaching thieves and protecting consumers from being victimized, according to testimony today from Steven Miller, IRS deputy commissioner, before a Senate subcommittee.
As of March 9, 2012, the IRS has stopped 215,000 questionable returns with $1.15 billion in claimed refunds by utilizing filters targeting refund fraud, Miller said.
“Over the past few years, the IRS has seen a significant increase in refund fraud schemes in general and schemes involving identity theft in particular,” Miller said. “Identity theft and the harm that it inflicts on innocent taxpayers is a problem that we take very seriously.”
But the agency has to strike a delicate balance of ensuring that Americans receive their refunds on time, especially when “refundable and other tax credits are provided to achieve important policy goals, such as relieving poverty or boosting the economy.”
“The IRS must deliver refunds in the intended time frame, while ensuring that appropriate controls are in place to minimize errors and fraud,” Miller said.
Miller said identity theft is a key focus of an IRS program launched in 2011. Under this program, he said the following improvements have been made:

  • Various new identity theft-screening filters are in place to improve the ability to spot false returns before they are processed and before a refund is issued. As of March 9, 2012, the IRS has stopped 215,000 questionable returns with $1.15 billion in claimed refunds from filters specifically targeting refund fraud.
  • The agency has implemented new procedures for handling returns that it suspects were filed by identity thieves. Once a return has been flagged, it will correspond with the sender before continuing to process the return.
  • The IRS is issuing special identification numbers (Identity Protection Personal Identification Numbers or IP PINs) to taxpayers whose identities are known to have been stolen, to facilitate the filing of their returns and prevent others from utilizing their identities. It has issued over 250,000 for this filing season.
  • New mechanisms are being implemented to stop the growing trend of fraudulent tax returns being filed under deceased taxpayers’ identities. The IRS has coded accounts of decedent taxpayers whose Social Security numbers were previously misused by identity thieves to prevent future abuse. It is also identifying returns of recently deceased taxpayers to determine if it is the taxpayer’s final return, and then marking accounts of deceased taxpayers who have no future filing requirement. So far this filing season, 66,000 returns have been stopped for this review.
  • The agency has expanded the use of its list of prisoners. The IRS has stopped 135,000 questionable returns this filing season. For the fiscal year, it has prevented almost $800 million in refunds representing an 80 percent increase in refunds stopped over the same period last year. It is engaging with prison officials to determine the best way to move forward since the authority allowing the IRS to share return information with prisons expired at the end of 2011.
  • IRS officials are also collaborating with software developers, banks, and other industries to determine how it can better partner with other parties to prevent theft.

One thought on “IRS Seeing ‘Significant’ Surge in I.D. Theft, Refund Fraud

  • April 15, 2012 at 9:54 pm
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    This is just IRS PR. They aren’t doing jack. If they were, there wouldn’t be thousands of criminals easily getting away with it. For every return they stop, hundreds more are getting through and the money is coming right out of the treasury while legit refunds are delayed. They need to stop rushing the refunds to people and at least put in some basic screening. Instead, they close the barn door after the horse is gone.

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