Identity Theft: Additional Actions Could Help IRS Combat the Large, Evolving Threat of Refund Fraud

Saturday, October 18th, 2014 @ 4:13AM

GAO-14-633: Published: Aug 20, 2014. Publicly Released: September 22, 2014

What GAO Found

Based on preliminary analysis, the Internal Revenue Service (IRS) estimates it paid $5.2 billion in fraudulent identity theft (IDT) refunds in filing season 2013, while preventing $24.2 billion (based on what it could detect). The full extent is unknown because of the challenges inherent in detecting IDT refund fraud.

IDT refund fraud takes advantage of IRS’s "look-back" compliance model. Under this model, rather than holding refunds until completing all compliance checks, IRS issues refunds after conducting selected reviews. While there are no simple solutions, one option is earlier matching of employer-reported wage information to taxpayers’ returns before issuing refunds.

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Posted by cfegov
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What is the Identity Theft Tax Refund Fraud Problem?

In general, tax-related identity theft occurs when an individual intentionally uses the Social Security number (SSN) of another person to file a false tax return with the intention of obtaining an unauthorized refund. Identity theft wreaks havoc on our tax system in many ways. Victims of identity theft not only must deal with the aftermath of an emotionally draining crime, but may also have to deal with the IRS for years to untangle the resulting tax account problems. Identity theft also impacts the public fisc, as Treasury funds are diverted to pay out improper refunds claimed by opportunistic perpetrators. In addition, identity theft takes a significant toll on the IRS, tying up limited resources that it could otherwise shift to taxpayer service or compliance initiatives