The Internal Revenue Service admits that it may have given more than $5 billion dollars in refund checks to identity thieves that filed fraudulent tax returns for 2011. In fact, the treasury department says that they estimate another $21 billion could eventually make its way into thieves’ pockets over the next 5 years. The government did an audit to determine the extent of the problem because they are concerned that this kind of fraud undermines our trust as taxpayers in the US tax system. The numbers are somewhat staggering. The IRS detected approximately 940,000 fraudulent returns for last year claiming $6.5 billion dollars in refunds. However, this audit determined there were potentially another $1.5 million undetected cases of fraudulent returns filed by thieves.
Thieves normally do this by filing a return on behalf of a dead person, a child or someone else who normally does not file a tax return.
The investigators found one address in Lansing, Michigan that was used to file over 2,000 separate tax returns. The IRS issued more than $3.3 million dollars in refunds to that single address.
Florida, which is acknowledged as the center of identity theft, had of course many fraudulent tax returns filed. In fact, in three addresses in Florida, there were more than 500 returns filed for more than a million dollars in refunds at each address.
Obviously, the IRS isn’t going to be able to stamp out identity theft and fraudulent tax returns. The concern is that the audit unveiled some sloppy procedures, things that could be caught by the IRS. For example: Hundreds of refunds were deposited into one particular bank account on more than one occasion. In one example, the IRS deposited 590 refunds totally over $900,000 into one account. Obviously, that’s a red flag the IRS should catch.
J. Russell George, the Treasury Department’s Inspector General for Tax Administration stated the obvious “At a time where every dollar counts, these results are extremely troubling.”
The IRS admits that identity theft fraud is one of its biggest challenges. On the plus side, the IRS has stopped almost $12 billion dollars in confirmed fraud and its criminal investigators are actively pursuing the bad guys.
For those who are victims of identity theft, the process is not that great. A separate report by the Inspector General in May found that the IRS was not providing good customer service and proper assistant to the victims of identity theft. The Federal Trade Commission has listed identity theft as the number one consumer complaint for the past 12 years.