The agency has added new filters to screen for potential identity theft tax fraud and is working harder to help victims get their rightful refunds. In late January, the IRS and Justice Department announced a nationwide sweep of arrests, indictments and other actions against 105 suspected perpetrators of the crime in 23 states. In its testimony to Congress, the IRS said it had initiated 276 investigations into identify theft tax fraud in fiscal 2011, up from 224 the previous year.
The IRS is under tremendous pressure to get taxpayers their refunds as quickly as possible while also accurately screening for fakes. That’s complex because people’s lives are complicated. Many of the things that might flag a return as fraudulent — such as a change in job, mailing address or name — are legitimate. The new IRS filters mean that more people’s tax refunds will get extra screening before they go out, Lemons said.
ID theft tax fraud tends to occur early in the tax season as criminals try to file before legitimate taxpayers. Despite the agency’s efforts, Foley, the identity theft expert, expects the problem to get worse before it gets better. That’s because criminals keep finding new ways to evade IRS systems. Still, he thinks the IRS is doing the best it can given its limitations. People want their legitimate tax refunds as fast as possible, but if the IRS doesn’t catch the fraud before the refund goes out, the agency may not even realize fraud has occurred until long after, when the real taxpayer goes to file a return.
The crime appears to have surged in popularity rapidly.
In Florida, NBC television affiliate WFLA and The Tampa Tribune reported identity theft tax fraud had became so widespread that some people were offering classes in how to commit the crime. The station’s investigation said the criminals dubbed the process “TurboTax” after the popular online software for filing returns.
Julie Miller, a spokeswoman for TurboTax’s parent company, Intuit, said in an email that the company had amped up its own fraud prevention efforts over the past year. She declined to give details for fear of tipping off criminals. In many cases, the fraud begins when a criminal steals someone’s name and Social Security number, and then uses them as a basis to create fake a return that ensures a hefty refund. The refund is sent to an address specified by the fraudster. Another method involves getting the names, addresses and Social Security numbers of recently deceased people from websites such as Ancestry.com, which are meant to help people find their long-lost relatives.