The Internal Revenue Service is grappling with a surge in identity theft-based tax fraud as crooks take advantage of web-based resources including electronic filing. Identity theft cases, in which criminals obtain living or deceased people’s names and Social Security numbers to defraud the government, ranked No. 1 on an annual “Dirty Dozen” list of tax scams the agency released Thursday. The IRS called ID theft one of the most complex threats it handles.
The IRS estimates 404,000 people were victimized by identity theft tax fraud from mid-2009 to the end of 2011. “We are seeing growth in this area. There’s no way around it,” said Terry Lemons, IRS director of communications. “But I also think that we’ve gotten better at detecting it.”
The IRS said it stopped nearly 262,000 fake returns based on identity theft from being processed in 2011, preventing nearly $1.5 billion in refunds from going to criminals. That is more than a fivefold increase from 2010, when the agency stopped about 49,000 fake returns seeking $247 million in fraudulent refunds. The IRS said it has no way of knowing how much in fraudulent refunds made it through the system undetected.
Experts say this type of fraud has increased thanks in part to the Internet. The Web has made it easier for honest people to file their tax returns — and for crooks to file fake returns electronically. The IRS has been on a major push to encourage people to file electronically.
“That was probably one of the biggest boons for the bad guys,” said Jay Foley, a partner with ID Theft Info Source and an identity theft expert. With more than 100 million income tax refunds to process each year, the IRS concedes it will never be able to quell such tax fraud completely. “The IRS cannot stop all identity theft. However, we are committed to continuing to improve our programs,” Steven T. Miller, the deputy commissioner for services and enforcement at the IRS, said in written congressional testimony in November.