The Internal Revenue Service is not exactly the most popular agency of the federal government, but like many others, it is a target for con artists. The IRS has been losing billions of dollars to tax return fraud from identity theft.
Half of bogus returns in tax return fraud go undetected
If something goes wrong at the Internal Revenue Service, most people aren’t exactly full of sympathy. However, they might be more apt to have some, once they realize that since the IRS is funded by the taxpayers, people who con the IRS are getting their fraudulent refunds paid for by everyone else.
A report from the offices of the inspector general for the Treasury Department found the IRS is losing a lot of money to tax return fraud, especially fraudulent returns submitted by identity thieves. The agency caught close to 1 million bogus returns filed by identity thieves in 2011, for the year 2010, amounting to about $6.5 billion in refunds. However, the report also estimates an additional 1.5 million fraudulent returns successfully resulted in refunds being disbursed for a loss of $5 billion.
Lack of detection lets fraudsters run amok
Additionally, according to Businessweek, the problem is projected to get worse over the next few years. The report also estimates that up to $21 billion is going to be lost to tax return fraud in the next five years.
Some of the frauds were egregious, not only for the size of the fraud but also the seemingly brazen nature of the scams. A single address in Lansing, Mich., was used to file 2,137 tax returns last year, resulting in $3.3 million in refunds being disbursed to that address. Similar scams were reported in other cities; according to the Wall Street Journal, one address in Chicago, Ill., claimed $903,084 from 765 refunds that year. Another scam was run from a single address in Tampa, Fla., which claimed $1.79 million in refunds on 518 returns.
All told, according to Businessweek, there were at least 10 instances where up to 300 direct deposits were wired into the same account, with a total disbursement of more than $470,000 in each instance.
According to Reuters, 641,052 taxpayers were the victims of identity theft in 2011, compared to 270,518 in 2010. Almost 16,000 have reported identity thefts to the Taxpayer Advocate so far this year, a 57 percent increase over the previous year.
Part of the problem, according to the Wall Street Journal, is that many fraudsters file returns for people who don’t make enough for a return to be warranted. They file one on the person’s “behalf,” and pocket the refund. It is also easy for crooks to access the Social Security Master Death File and file returns for the recently deceased. Most of the fraudulent returns were filed electronically and thus got fast-tracked.