Fraud and Identity Theft Target Millions of Tax Refunds



It is tax season again and while hard-working citizens are deciphering complicated tax codes and shuffling papers, criminals intent on fraud and identity theft are targeting the tax refunds of millions of Americans. For these criminals the ease of obtaining stolen Social Security numbers and the convenience of online tax software make the months before the April 15 tax filing deadline like a second Christmas. It does not matter if these thieves are on Santa’s naughty list; the IRS has demonstrated every year that the agency is ill-equipped to deal with identity fraud and pays not just millions but billions out every year to impostors.

Defrauding the IRS is apparently, rather shockingly, easy as evidenced by the 1.6 million tax paying citizens who, in just the first half of 2013, were victims of identity theft and had their tax refunds stolen. Common criminals are quick to target the holes in the agency’s ability to detect fraud and they are able to elude the security filters that were ostensibly set up to prevent identity theft. It appears that this porous security system has been wholly inadequate at preventing fraud and has resulted in millions of tax refunds being compromised.

IRS Commissioner John Koskinen admits that despite trying to keep one step ahead of thieves, much like the popular arcade game, “Whac-a Mole” the agency finds that for every identity theft they solve or prevent, another thief is just waiting to pop up and perpetuate the cycle of fraud. The IRS has resorted to providing personal identification numbers to victims who have previously had their tax refunds stolen and these numbers are specially coded to indicate that they were victims of fraud. These PIN numbers red flag certain returns for closer examination and are further evidence that the IRS has not been able to handle the flood of identity theft that has negatively complicated the lives of millions of taxpayers.

Kathryn Keneally, the U.S. Assistant Attorney General for the Tax Division says that when it comes to tax refunds identity theft is simply a numbers game. The more fraudulent returns that are filed, the better the odds of one slipping through the system resulting in a nice gift for identity theft criminals many of whom have been so bold as to post photos of themselves on social media with wads of cash stolen from the legitimate taxpayers they have scammed.

Michael Kranish of The Boston Globe suggests that one way to prevent the millions of cases of identity theft that have impacted tax refunds is for the IRS not to send refunds until after the filing cutoff date of April 15 has passed. This way if there are duplicate returns for the same Social Security number, one from a legitimate filing and another from a fraudulent one, it would raise a red flag and the agency could then investigate to determine which filing was legitimate. However, due to a congressional mandate, taxpayers are due their refunds as expediently as possible after they file. On the surface, this might seem like a courtesy to taxpayers but it also serves to make April 15 a different kind of deadline for thieves. For them, April 15 is the cutoff date after which they must wait until the following year to target hard-working taxpayers most of whom assume that their personal identification information is secure at the IRS.

By Alana Marie Burke
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Treasury Inspector General for Tax Administration
The Boston Globe