Photo: Flickr / Bryan Bruchman
The latest IRS identity theft case found that more than $5 billion in tax refunds were sent to identity thieves in 2011, according to a new government report. The refunds represent a growing problem of identity theft in the tax system that many believe will be more difficult to stop than most assume.
IRS Issued 1.5 Million Fraudulent Tax Refunds
A government audit conducted by the Treasury Department inspector general revealed that the IRS issued a larger number of fraudulent tax refunds than ever imagined.
According to the audit, the IRS detected about 940,000 fraudulent tax returns for 2011 that claimed $6.5 billion in refunds. However, there were another 1.5 million returns that went potentially undetected, resulting in millions of tax refunds being issued to identity thieves.
In most cases, the thieves took the identities of the deceased, children, or individuals who would not normally file tax returns. In one IRS identity theft example, the audit discovered that just one address in Lansing, MI was used when filing 2,137 tax returns last year. The IRS ultimately issued more than $3.3 million in tax refunds to that address.
In another case of IRS identity theft fraud, 590 refunds totaling more than $900,000 were deposited into one bank account.
IRS Identity Theft Expected to Continue
Despite the audit catching billions in fraudulent tax refunds, the inspector general expects IRS identity theft to result in another $21 billion in fraudulent refunds over the next five years.
The reason investigators believe fraud will continue is because the IRS lacks timely access to information that could help them verify whether a tax return is valid, or a case of identity theft. The IRS is under extreme pressure to process and issue tax refunds promptly due to the suffering economy. As a result, many returns aren’t reviewed thoroughly.
The investigators say that the IRS has been working hard to slow identity theft-related fraud. This year alone, the agency managed to stop almost $12 billion in confirmed IRS identity theft attempts and is actively pursuing those who are guilty of the crime.
But the inspector general says the IRS needs more resources to help fight theft and avoid losing public trust in the U.S. tax system.
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