Identity Theft and Tax Fraud IRS

Monday, September 5th, 2016 @ 7:09PM

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CFEG reports that the Government Accountability Office (GAO) recently released its May 2016 report on Identity Theft and Tax Fraud. GAO found that the IRS paid $3.1 billion in fraudulent identity theft tax refunds in 2014. However, because of the difficulties in knowing the amount of undetected fraud the actual amount is not known. GAO found that identity theft tax refund fraud is an evolving and costly crime despite the IRS’s efforts to prevent it.

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IDENTITY THEFT AND TAX FRAUD IRS Needs to Update Its Risk Assessment for the Taxpayer Protection Program

Why GAO Did This Study

IRS estimates that, in 2014, it prevented or recovered $22.5 billion in attempted IDT refund fraud, but paid $3.1 billion in fraudulent IDT refunds. Because of the difficulties in knowing the amount of undetected fraud, the actual amount could differ from these point estimates. IDT refund fraud occurs when a refund-seeking fraudster obtains an individual’s identifying information and uses it to file a fraudulent tax return. Despite IRS’s efforts to identify and prevent IDT refund fraud, this crime is an evolving and costly problem.

GAO was asked to examine IRS’s efforts to combat IDT refund fraud. This report (1) evaluates the performance of IRS’s TPP and (2) assesses IRS’s efforts to improve its estimates of IDT refund fraud costs for 2014. To evaluate TPP, GAO reviewed IRS studies, reviewed relevant guidance, and met with agency officials. Further, GAO conducted a scenario analysis to understand the effect of different assumptions on IRS’s TPP analysis. To assess IRS’s IDT cost estimates, GAO evaluated IRS’s methodology against selected best practices in the GAO Cost Guide.

What GAO Recommends GAO recommends that IRS update its TPP risk assessment and take appropriate actions to mitigate risks identified in the assessment. GAO also recommends that IRS improve its IDT cost estimates by removing refund thresholds and using return-level data where available. IRS agreed with GAO’s TPP recommendations and will update its risk assessment. IRS took action consistent with GAO’s IDT cost estimate recommendations.

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