Internal Revenue Failing To Identify Tax Refund Thieves According To Audit... AP Story
While honest Americans are struggling to even make ends meet in 2012, at least 1.5 million dishonest people are enjoying their share of $5 billion in refund checks that the IRS has paid to thieves who filed fraudulent tax returns for 2011. And, Treasury Department investigators said that they estimate another $21 billion could make its way to ID thieves' pockets over the next five years.
According to Associated Press writer Josh Lederman (August 3, 2012 story), the IRS is detecting far fewer fraudulent tax refund claims than actually occur. That's according to a government audit that warned the widespread problem could undermine public trust in the U.S. tax system. Although the Internal Revenue Service detected about 940,000 fraudulent returns for last year claiming $6.5 billion in refunds, there were potentially another 1.5 million undetected cases of thieves seeking refunds after assuming the identity of a dead person, child or someone else who normally wouldn't file a tax return.
Lederman says that the feds claim a lack of being able to gain access to verify third-party information is one of the main root causes. Another big dilemma is the fact Americans can begin filing for their refunds in mid-January, while employers and financial institutions don't have to submit withholding and income documents for taxpayers to the IRS until the end of March. In hindsight, the IRS often issues refunds long before it can confirm the veracity of what's listed on taxpayer returns.
Thieves are also exploiting vulnerabilities in the way the IRS delivers refunds. They often prefer direct deposit and or debit cards instead of a paper check, which require a physical address to receive the check and photo ID matching the taxpayer's name to cash it.
Thieves Are Blatantly Ripping The The IRS Off
A single address in Lansing, Michigan was used to file 2,137 separate tax returns. The IRS actually issued more than $3.3 million in refunds to that address. Three addresses in Florida were identified where thieves filed more than 500 returns totaling more than $1 million in refunds for each address. Hundreds of refunds were deposited into the same bank account. In one instance, the IRS deposited 590 refunds totaling more than $900,000 into one account.
"We found multiple reasons for the IRS's inability to detect billions of dollars in fraud," J. Russell George, the Treasury Department's inspector general for tax administration, in a statement. "At a time when every dollar counts, these results are extremely troubling." IRS officials said the growth of identity theft-related fraud is one of its biggest challenges. Already this year, the agency has stopped almost $12 billion in confirmed fraud, it says. And it says its criminal investigators are actively pursuing those who perpetrate fraud – including the previously undetected cases identified by the audit.
"If the IRS determines a refund has been issued improperly, we will attempt to recoup the funds," said IRS spokeswoman Michelle Eldridge. The IRS agreed with the inspector general that Congress should expand the agency's access to resources that could help it fight theft, including the National Directory of New Hires, a database created to help states enforce child support orders. The IRS specifically asked Congress for that authority in its 2013 budget request.
Investigators went back through a sample of the 1.5 billion undetected cases to see why the IRS never flagged them as fraudulent. In 49 of 60 returns, investigators said, the return didn't score high enough on the IRS's fraud filter to merit a closer review. In eight of the 11 cases where the IRS did perform an additional review, it never verified the income and withholding on the return.
Steps Are Being Taken To Curb Identity Theft In The Tax System
Florida Sen. Bill Nelson, whose home state contains the top two cities where fraudulent tax returns originate: Tampa and Miami. Last week Nelson, a Democrat, joined with Republican Sen. Tom Coburn of Oklahoma to introduce legislation designed to curb identity theft in the tax system. "It's an ongoing problem," Nelson said in a statement. "We've got to find a fix."
Nelson's bill would improve protections for Social Security numbers that thieves need to file returns, and would expand an existing program that gives previous victims of ID theft a personal identification number to deter repeat offenses against the same taxpayer. Another bipartisan bill passed by the House on Wednesday would bolster prosecutions and strengthen criminal penalties on ID thieves.
The IRS said it is already putting a number of new measures in place, including new ID theft-screening filters that will hold on to refunds until the IRS can verify a taxpayer's identity. That filter had thwarted about $1.3 billion in potentially fraudulent refunds through April, the audit said. Another system flags returns filed with Social Security numbers of those who have died.
Lederman states that for those who fall victim to identity thieves, the recovery process can be less than smooth. A separate report by the inspector general in May found that the IRS wasn't providing good customer service and proper assistance to victims of ID theft, increasing the burden for those whose identities are stolen. The Federal Trade Commission has listed identity theft as the No. 1 consumer complaint for the past 12 years.
End Of Story…
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